Friday, November 20, 2009

Random Friday Afternoon Observations....

Gold and silver were unusually strong the past two days relative to the S&P 500 and the dollar.  Silver managed to hold two attempts to take it below $18.  Today it hit a low early this morning of 18.05 (December contract) but closed access trading at $18.51.  For most of yesterday and today, spot silver was trading in 2-4 cent backwardation (spot higher than the front month futures price), indicating an extremely high degree of demand for physical silver relative to its immediate supply.  I actually missed the closing price of gold on the Comex, but if you include the access market close, gold closed at an all-time record high.  Next week should be interesting, to say the least....

Some Congressional Democrats, led by Peter DeFazio of Oregon, are starting to jump on the "get rid of Geithner" bandwagon on Wednesday DeFazio called for Geithner's resignation on MSNBC.   Yesterday during Geithner's blow-smoke-up-our-ass session in front of the Joint Economic Committee, Congressman Kevin Brady point blank asked Geithner to resign:  "Mr. Secretary, you are the point person on the economy, and the buck, in effect, stops with you," Brady said. "For the sake of our jobs, will you step down from your post?"   Congressman Michael Burgess followed up with:  "I don't think you should be fired. I thought you never should have been hired."

The real issues with Geithner for me are the fact that he was found guilty of cheating overtly and for multiple years on his taxes and Obama should have withdrawn his nomination of Geithner as soon as these facts were revealed.  Rep. Burgess is right - Geithner should have never been appointed and confirmed.  But worse, it has now come to light that Geithner essentially transferred 10's of billions from the Taxpayers to the large investment banks which were derivative counter-parties with AIG when Geithner was head of the NY Fed.  Not only should Obama fire Geithner immediately on this basis, he should appoint an independent investigator to investigate every aspect of Geithner's involvement in this grand theft of Taxpayer money.   Geithner is a criminal for dodging taxes and he is likely an even bigger criminal for his role in the AIG/Goldman Sachs et al bailout.

I was going to pontificate about the possible criminal behavior of Fed Head, Banana Ben Bernanke, but I don't have the energy right now.  So on that note I'll end with, who gives a shit that Oprah is ending her talk show?


  1. Hi Dave!

    Thank you for posts! They do give a lot of valuable information.

    Sure would like to hear your thoughts about coming option expiry week...

  2. Hey Anonymous. Thanks for the feedback - I appreciate it.

    As you know, typically gold and silver get hammered in price on Comex options expiration day. It's almost 100% and often key the futures are hammered below key strike prices in the last few minutes of trading. Amazing how everyone sees it except for the CFTC. Gary Gensler, head of the CFTC, is from Goldman Sachs. I guess he's Goldman's blind man doing God's work...

    Anyway I digress LOL. After over 8 years of analyzing, trading and investing in this sector, I have come around to taking an "agnostic" view of gold/silver opex. My expectation is that gold/silver will close lower than they open on Monday. We have held off deploying new cash until we see what happens during Comex trading hours.

    Obviously, the interesting question is the 29,000+ open calls at 1200. It would appear that those are going to expire worthless. The remaining question is whether or not the big holder will exercise them anyway. Back in, I beleive 1997, a large holder of out of the money silver call exercised. It is thought the holder was Warren Buffet. He made a lot of money ultimately on that trade. I'm not saying Buffet holds the gold calls - he's too busy sucking wind on WFC and a big railroad. I'm just saying that it's a remote possibility that those calls are exercised.

    All this is to say that I have no reason to expect any gold/silver price action that deviates from the norm. But who cares, because between now and the Super Bowl, I expect that gold and silver will be a lot higher in price than even most goldbugs are expecting.

  3. Hi Dave!

    Thanks for the reply!
    Just one (might be a stupid but I do not speak english as my native language and some terms are not yet common to me) question, what do you mean by saying "exercising the calls"? You mean taking the actual delivery? And how that would effect?

    KR maic

  4. Dave could you please answer a question I have about the Federal Reserve and the USD they print?
    I read about the Silver Certificate notes that were issued and how the usd in the Brenton Woods Agreement was backed by gold. My questions is exactly whose silver and gold was used to back the paper money being issued back then? I mean, from my understanding the fed is a private bank and congress transfered authority of controlling the countrys money supply to the fed. But what assets does the fed have to back these issuance? Your explanation will be much appreciated! Thanks.