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:

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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:

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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