Gold and Silver Prices Will Explode Again: John Hathaway
The gold price jumped about fifteen dollars to around $1,490 spot in early Far East trading. The price then spent the rest of the Friday trading day wandering around without much conviction within ten bucks of that price…and closed the day up about twenty three dollars from Thursday’s close. Nothing much to see here folks, although the volume was pretty heavy.
Silver traded within a dollar of $35 up until shortly before noon in London. Then the price dropped down to its low of the day and this move down…$33.05 spot…which conveniently happened to occur right at the Comex open in New York at 8:20 a.m. Eastern time.
From that low, silver caught a bid…and it’s high price of the day [$36.61 spot] occurred shortly after 11:00 a.m…before giving up about some of those gains as Friday trading wound down for the weekend.
I’ll stick my neck out and guess that the $33.05 price print was silver’s low for this move…and that the worst is now behind us.
The dollar opened around 74.10 in early Far East trading…and spent the next nineteen hours bouncing off of the 74.00 level. Then, at 12:00 noon in New York, the dollar caught a bid of sorts…and finished the Friday trading session up about 70 basis points.
A cursory glance at the gold chart above shows that the dollars activity [or its lack thereof] had no bearing whatsoever on Friday’s gold price action.
The gold shares gapped up at the open, but were not overly responsive to the gold price gains after that, which I must admit that I was a bit surprised at. Friday’s HUI looked more like yesterday’s Dow chart, than the chart of the gold price action. The HUI finished up a meager 0.34%.
Here’s the HUI chart for the week that was…and it’s not very pretty. However, no matter what happens with the gold price next week, if we didn’t set an important low in gold on Thursday around 3:00 p.m. Eastern time…the bottom in the gold price can’t be far off, as the worst of this move is certainly already behind us.
The silver stocks had a much better time of it than their golden cousins yesterday…as there were decent percentage gains in most silver stocks. Here’s Nick Laird’s “Silver Sentiment Indicator” updated with Friday’s change.
The CME Daily Delivery Report yesterday showed that 67 gold, along with a chunky 243 silver contracts, were posted for delivery on Tuesday. In silver, the big issuer was Barclays [241 contracts]…with the Bank of Nova Scotia [114 contracts] and Merrill [95 contracts] being the two biggest stoppers by far. The link to that action is here.
The GLD ETF had another decline yesterday…but this one was rather small, as 97,477 ounces were reported withdrawn. The SLV ETF had a smallish decline as well…down 487,772 troy ounces. Ted feels that some, if not most, of the withdrawals of the last few days from SLV were ‘plain vanilla’ fund liquidation.
The U.S. Mint had another sales report on Friday. They sold another 37,500 troy ounces of gold eagles, along with 1,500 one-ounce 24K gold buffaloes…but no silver eagles were reported sold. Month-to-date, gold eagle sales are 62,000 ounces [which is a lot for just five business days!]…4,500 one-ounce 24K gold buffaloes…along with 701,000 silver eagles.
There was decent action at two of the Comex-approved depositories on Thursday…as no silver was reported being received, but 562,401 troy ounces were shipped out the door.
The eagerly awaited Commitment of Traders Report [for positions held at the close of trading on Tuesday, May 3rd] was a surprise…at least in silver. Both Ted and I were expecting a huge drop in open interest…because of the 2-day $7.50 waterfall decline in the silver price that occurred on Monday and Tuesday of this past week.
What we got in this report was no change at all in the Commercial net short position. Actually it did improve by a whole 74 contracts…but in the grand scheme of things, that’s not even a rounding error.
Ted and I agree that the bullion banks did not report all of Monday and Tuesday’s action in a ‘timely manner’…as I am wont to say from time to time. In other words, they fixed this report by withholding data so that curious eyes couldn’t see what they were doing.
One thing that did change, which I never talk about in this column, is the status of the Non-Commercial category. This is where the brain-dead technical funds trade…the large traders that hold over 150 silver contracts either long or short. Their net long position is now down to a tiny 23,354 contracts.
The lowest number I’ve ever seen in that category is around 13,000 contracts held net long…and that was many many years ago. I’m only guessing, but after Friday’s trading action, I’d say we’re either back to that number…or below it. That means that there is virtually no tech fund long blood left in this stone to be squeezed out…and I would also guess that the tech funds have gone massively short as well. That’s the principle reason why I think that the bottom is in for the silver price.
It was a different story in gold…as the bullion banks reduced their net short position by 8,892 contracts…which is 889,200 ounces of gold.
The Commercial net short position in gold is now down to 24.0 million ounces. The ’4 or less’ bullion banks are short 15.5 million ounces of that…and the ’8 or less’ bullion banks [which includes the '4 or less' bullion banks] are short 22.9 million ounces.
Without doubt, the bullion banks’ short position in both metals has declined dramatically since the Tuesday cut-off and, along with the data they withheld from this last COT report, next Friday’s report should be a sight to see…unless we get a massive rally on Monday and Tuesday of this coming week that negates all that. Time will tell.
Here’s Ted Butler’s “Days to Cover Short Positions” graph…courtesy of Nick Laird over at sharelynx.com.
Here are the figures for silver from the May Bank Participation report which was issued yesterday. All the data from that is extracted from yesterday’s COT report for positions held of as this past Tuesday…so we can compare apples to apples.
The report shows that 4 U.S. Banks [probably only 2 that matter...JPMorgan and HSBC] decreased their net short position by a whopping 5,757 Comex futures contracts…and are now down to 18,830 contracts held short. Ted says that this is the lowest Comex futures short position that JPMorgan has had in silver since they took over Bear Stearns’ short position back in 2008.
The 12 non-U.S. banks reduced their net short position in silver by 1,157 Comex contracts…and are now down 3,608 contracts held short. I’m speculating here, by I would bet money that the bulk of these short contracts are held by just one foreign bank…and that is Canada’s Bank of Nova Scotia.
Using Grade 3 arithmetic, this report shows that JPMorgan’s short position [18,830 contracts] is almost five times the size of the entire short position of the 12 non-U.S. banks combined…which is 3,608 contracts. How’s that for concentration?
In gold, the May Bank Participation report shows that 4 U.S. banks are net short 92,940 Comex futures contracts…which is an increase of 5,225 contracts from the April report. The 14 non-U.S. banks are short 33,832 Comex futures contracts…which is a decline of 3,446 contracts from the April report.
In a nutshell, the BPR shows that the world’s bullion banks decreased their Comex short positions in silver by almost 7,000 contracts up until the close of trading on Tuesday…and increased their net short position in gold by a smallish 1,800 Comex contracts.
And, without doubt, if JPMorgan et al had provided all the data from Monday and Tuesday’s trading days, not only would the COT numbers be hugely different, but the BPR report would have been much better still. And it nearly goes without saying that if you could factor in the last three days of this past week into these numbers, May’s BPR would be almost unrecognizable from the numbers I just reported. This has been a down-side clean-out of biblical proportions in both silver and gold…and I would suspect the same for platinum and palladium.
Here’s Nick Laird’s graphic illustration of yesterday’s Bank Participation Report…along with all the ones that have gone before it, so you can see the magnitude of the change in silver. The graph is a little on the busy side, but if you invest the time, the story it conveys will be clear.
My bullion dealer had his biggest sales day of 2010 yesterday. And it would have been an even bigger sales day, but he had to turn down several huge orders late in the day because, with the Comex closed, his suppliers would not lock in a silver price that late on a Friday afternoon.
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