Friday, May 28, 2010

Some Friday Observations Before The Long Holiday Weekend

Ever notice how many times over the past several years that gold/silver move higher overnight in the Asian and European markets (primarily physically traded bullion markets) and then takes a cliff-dive right at, or thereabout, the 8:20 a.m. EST Comex open (paper fiat futures market)? Here's a 10-min. chart of today's trading in the August Comex future:
(click to enlarge)

Let's take a look at why they hit the paper price of gold today. As usual, the key is to follow the money. The magic number today is 11,356. That's the open interest on June Comex gold going into first notice day. Theoretically, every one of those contracts could receive notice of delivery today and that would entail the delivery of 1,356,000 ounces of gold.  That number represents 40% of the gold available to be delivered on the Comex.  Let's take this 1 step further.  Scotia Mocatta has been repeatedly accused of having in custody far less gold than they report - an accusation they have never denied.  Currently Scotia is reporting to hold 1.4 millon of the 3.2 million "dealer" or registered gold - that which can be delivered (the other 7+ mm ounces is investor gold kept in custody at the Comex).  Let's just say that if Scotia only has half of its reported available to deliver, then today's June open interest represents 55% of deliverable Comex gold. 

Needless to say, if the market senses that a large porition of the June open interest stands for actual physical delivery (as opposed to tendering for cash or GLD in lieu of taking possession of gold), then the next month could get very interesting for the price of gold (hint:  Apollo moonshot).

On another note, anyone holding their eyes closed and keeping their underwater position in BP stock should start thinking about heading for the exits.  BP was down 6% at one point today, indicating that its latest "top kill" attempt to plug the well is not working.  Yesterday they told us they would need 24 hours to know if it was working.  Today they are telling us they need another 48 hours to know.  Conveniently, how many people will actually be paying attention to the news on Sunday?  Here's is a chart of BP's stock price over the last 6 months:
(click to enlarge)

BP stock is starting to take on the same chart characteristics that so many bankrupted companies before it have followed.  Plunge, followed by optimism based on upper management lies, followed by an irreversible death spiral. 

Based on what I've read to date, plus chatting with some colleagues who have good insight, this situation in the Gulf, best case, is going to be a multi-100 billion dollar disaster, and, worst case, could end up being by far the worst environmental catastrophe in history. Either way BP equity is in trouble. It has been pointed out by the hopeful still clutching onto their BP shares - and of course by the financial advisors that put them into BP - that we need oil so we need BP. But, we need BP's oil properties, not BP the corporation. If the Obama Administration handles this disaster in a way the forces BP to pay as much of this as possible, and minimizes the amount the taxpayers end up having to pay, then BP the corporation will go bankrupt.

Let's see if BHO the POTUS will do the right thing.  If he does, you don't want to be holding BP stock.

On an optimistic note, this weekend kicks off summer, it looks like Denver is finally shaking off the horrible weather of the last 6 months and my view of the front range mountains is spectacular.  I hope everyone has been accumulating gold and silver, because my colleagues and I believe we could see a very big, unexpectedly strong and unseasonal move higher during the course of the summer.  And for those you who eschew precious metals or insist on holding on to your BP stock, here's something for you -  bon appetit! LINK 


  1. Nice post, Dave.

    I put the comex action down to it being the last trading day in May...ergo painting the tape....don't let it end too high.

  2. Thanks! No doubt there's a paint the tape component.

  3. Don't forget an unseasonal up move in the USD
    coming up Dave.

    Enjoy your weekend Chico.

  4. Dave,
    have a great weekend. I should have BBQ pics up maybe Sunday. No party pics, its a family blog.

    Everything I saw this week makes me more confident of Gold and Silver going forward.

  5. GYC, the BBQ pics will be better porn for me (well, almost. Agree on gold/silver. May be some interest news related to silver that hits next week.

  6. LOL Chico. I'll be impressed if the dollar can punch thru 87 for an extended period - like more than a few hours to start.

    Have a good one.

  7. Can you believe this, folks, Obama actually went along with British Petroleum's claim that they did not have to take orders from the United States claiming they were in international waters.

  8. Dave--we had a "2-fer" this Friday night. Not only do we find out after the market close that the problems continue in the gulf. The "daily double" is the after the close admission (going into the 3 day weekend) that Rahm had Bill Clinton speak to Sestak.

    President Obama has really changed DC.

  9. Gold has been moving up with the dollar since around mid-April...$USD&p=D&b=5&g=0&id=p91441865199

  10. Hal, I think the Sestak thing is matter of course in politics. Rove used to use intimidation of Repubs in tight races to force them to vote for Bush legislation.

    More interestingly, this may torpedo any hopes the Dems had of keeping that Senate seat...

  11. Hal, one more point, I would prefer to see Obama's handling of this BP thing deeply investigated and exposed vs. the Sestak thing.

    Yardfarmer, I've said this ever since Obama started appointing his cabinet, starting with Geithner and Summers: Obama is a fucking idiot. Worse, he's an empty suit being filled by the people who control him.

    Rodd et al...we may get some VERY interesting news hitting the tape re: silver in the next week or two...It may take many by complete surprise...

  12. Dave, the sestak thing is probably Normal however, this was the change that many thought was going to occur.

    The oil spill issues are so multidimensional but we will have time later to fix blame etc. Looks like nobody has a clue on how to stop it and we do not even fathom how far reach the damage is.

    Obama cozy relationship with banks oil and big business is certainly a big issuer but the oil spill supercedes all that.

    Got to watch hawk game.

  13. Happy Memorial Day...TGT.

  14. Ya I hear ya Hal. I wrote off Obama the instant he started his cabinet with Geithner and Summers. He is a bigger loser than Bush because at least Bush never feigned sanctimony. I still can't believe the number of ordinarily intelligent people who still have faith in Obama. I don't know if it's complete denial, ignorance of the facts, or self-righteous political correctness.

  15. Dave,

    Are you referring to this article?


    It won’t be long, within two weeks that a class action lawsuit, one of many by silver owners, will be filed against JPM Morgan Chase for manipulating the silver market. That should get Wall Street’s and Washington’s attention.

    Joe M.

  16. Wow. I wonder if that's the same one I know about.

  17. Holy silver surfer....check this out...

  18. Dave: THANKS for the rest of your advice you gave me the other day. And thanks to Joe as well.

    Here's an interview I thought would interest you, much of it about gold. The interviewee is Felix Zulauf. Good stuff.

    All the best.

  19. anytime! i hope i helped a bit. i agree with zulauf w/regard to the eventual 50-100x expansion of Central Bank balance sheets to combat global depression. I disagree that it won't cause hyperinflation. He's Swiss, he should know better...