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 

Two Must-Watch Videos:

"Central Banks stand ready to lease gold in increasing quantities should the price rise"

 - Alan Greenspan, July 1998

Many of you may have already watched these. They are worth watching twice. The first one is Mike Maloney, who does a great job explaining "why gold/silver?" In this quick video, he discusses the Central Bank gold leasing operations and why it is leading into one of the biggest short squeezes ever. Here's some of his salient quotes

- GATA "has compiled a body of evidence that is just so overwhelming that any sane person that looks at it comes to the conclusion the world's Central Banks have been doing this process of leasing gold and selling it into the markets to suppress the price"

- "if [the Central Banks and ETFs like GLD] had to go out and buy the gold and silver in the open market to replace it, the price would go to the moon."  But even if they don't, just being publicly exposed as being short irreplaceable gold/silver will make the price explode.

- "they're getting caught in one fo the world's most gigantic short squeezes and one day we will see thse prices just absolutely explode"...here's the video:



The CB and ETF leasing schemes have created the illusion that there's a lot more physical gold and silver in the market than really exists and these entities have created a short position in the metals that will ultimately be very difficult, if not impossible, to cover. The price of gold and silver do a moonshot and the prices of ETFs like GLD and SLV will plummet like Enron/Refco/Bear Stearns et al.

And here's a 12 minute interview with Marc Faber.  Just for the record, Faber for the last 5 years has been way too conservative in his gold price projection.  But he's getting warmer - Here's his defining quote:  "when I look at all the asset classes in the world and I look at the forthcoming disaster that I envision in the next few years, I am quite happy to be holding physical gold:"

Quote Of The Year And Must-Read Analysis From Reg Howe

You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.

George Bernard Shaw, 1928

Linked below is among the most well-written and brilliant analysis of how the Central Banks conspire to suppress the price of gold and how they are using GLD for this purpose. Reports about the fraudulent business structure of GLD have been published ad nauseum, including one by me, but this forensic accounting anlysis by Reg Howe is nothing short of remarkable and he clearly lays out the argument, supported by data taken directly from BIS (Bank for International Settlements - the global Central Bank of Central Banks) quarterly documents.  Here is one of the salient quotes, to wet your appetite and stroke your curiosity: 

In recent months, while GLD has generally sold at a slight discount to net asset value, other bullion funds with more transparent and credible custodial and auditing procedures have commanded significant premiums. E.g., Central Fund of Canada (CEF), Central Gold Trust (GTU), Sprott Physical Gold Trust (PHYS). Anecdotal evidence also continues to surface of premiums for spot delivery of physical metal or cash settlement in lieu of physical.

Gold forward rates as reported by the London Bullion Market Association (www.lbma.org.uk) have remained positive territory, but accompanied by sporadic negative lease rates at the shorter maturities. See Gold Derivatives: The Tide Turns (5/25/2009), and materials cited. At the LBMA, therefore, gold continues to avoid backwardation, but only because central banks continue to lend at historically very low lease rates.

It is a strange situation. Gold for spot delivery and bullion funds with high credibility for physical possession of metal in the amounts claimed are selling at premiums over paper of lesser reliability. But where gold is arbitraged against currencies on the basis of relative interest rates, it remains in contango. Freer private markets are increasingly disconnecting from more regulated and controlled official markets. Backwardation is arriving in gold, but ass backwards. Of course, nobody should be surprised. That is the way central banks typically operate.

Here is the link to the full report - please take the time read it thoroughly:  LINK

For the record, until GLD can prove that its Custodian AND the subcustodians possess every single bar of gold listed on GLD's website - that these bars are not just paper swap transactions with U.S. and European Central Banks, GLD shareholders are highly exposed to an Enron/Refco/Bear Stearns type of price collapse.  The instant a big holder of GLD tries to exchange its shares for a couple hundered tonnes of GLD's gold -and GLD blinks and hesitates on the delivery - the price of spot gold will shoot to the moon and the price of GLD will have an "air pocket" plummet. 

A long-time investment advisor colleague of mine remarked that he had put his clients in GLD today.  I replied, I hope you are not holding GLD when it's exposed.  He replied that he needed the relative liquidity of GLD for the size he was buying.  I replied that the second GLD is exposed, GLD will go "no bid" and the only thing liquid will be the brown substance in your boxer shorts. Not only that, your phone will start ringing off the hook from lawyers who are filing "breach of fiduciary duty" lawsuits.

For all you GLD loyalists, I have just one question:  "Do you feel lucky, punk?"

This Is Not A Good Sign:

From Bloomberg:  Banks Seek $10 Billion of Bids in Effort to Sell Bad Mortgages

As more banks explore selling soured housing debt, a smaller share of the loans that they are considering off-loading are actually being sold, Daurio and Goodwin said. Instead of one in five potential deals turning into DebtX auctions, “that ratio has gotten worse recently,” Goodwin said during the session. LINK

Despite the lipstick put on this pig by "experts" quoted in the article, the reality is that mortgage delinquencies and defaults continue to climb and banks are looking to unload as much of this crap-ass paper as they can before they have to start tapping into their excess reserves at the Fed in order to monetize the problem.  Let's not forget that a large part of bank profits since last year have been derived from marking up the holding value of assets like distressed mortgages.

Although the banking sector was slammed today - the BKX bank index was down 3.2% - Wells Fargo stock was hammered for 4.6%.  WFC is a large purveyor and holder of the nuclear explosion mortgages known as pay-option ARMs.  The stock performance today in the financial sector likely reflects the deteriorating financial condition of the United States.

On a related note, some idiot disguised as a financial expert on CNN Headline News, Clark Howard, was on today gleeflully explaining to viewers that the housing market was going lower now that the housing tax credit expired and it was great time to buy because prices were dropping by as much as 10% in some areas, as people who weren't able to sell to tax credit buyers now look just to sell before they default.  How would you like to be one of those poor slobs who was aggressively cajoled into buying some beater of a home by his broker in order to take advantage of the tax credit and "good prices," and and then turn on CNN to hear that now your purchase closed, the value of your home has probably already dropped by about 10% - which factors in 8.5% for the tax credit plus another 1.5% because of the inventory that is now flooding the market.  Many homes around my area in Denver are now sporting "price reduced" signs on top the realtor sign in front.

The housing market is on the edge of another cliff dive.  The policy makers have completely misjudged the effectiveness of the tax credit program as a means of "jump starting" the housing market.  Expect the Fed to roll out another massive money printing program, using Europe's woes as the cover excuse.  But we all know by now that the problems in Europe pale compared to the brewing financial/economic disaster in this country.

Compelling Evidence For A Big Move In Gold This Summer?

Trader Dan Norcini has outstanding commentary on the gold/silver markets (and other commodities), which can be found at http://www.jsmineset.com/  One aspect he monitors is the weekly Commitment of Traders report. Over the past few weeks he has uncovered a potentially extraordinary development which could support a very big move higher in the price of gold.

In summary, the swap dealers - the bona fide trading desks at banks that make markets in gold, paper vs. physical, for bona fide commercial users/hedgers - have been aggressively covering their net short position, in contrast to the proprietary "cartel" desks at banks, which have been increasing their paper short positions in an attempt to cap the price of gold/silver. In my view, based on Trader Dan's empirical analysis, I believe this is more evidence that the Comex paper fraud is moving closer to GATA's "commercial signal failure," which occurs when the demand for physical gold completely overwhelms the ability of the paper shorts to deliver the actual goods. Here's Dan's excellent analysis:  Gold: Look Out Above?

One possible interpretation of this is that the swap desks, because they deal in both paper and physical gold, have a first-hand view of physical availability and are attempting to reduce their exposure to the growing shortage of physical bars in both London and NY by reducing their net position and actually increasing their long position in later months, as pointed out by Dan.  This would be consistent with the ever persistent reports out of London, and the actual delivery experience of our bullion fund, of delivery delays and an increasing tightness of physical supply.

I have been discussing with long-time colleagues the possibility that this summer may experience a big move higher in gold, contrary to the seasonals, as Europe and the U.S. continue to melt-down fiscally and economically, and the world continues to shift from fraudulent paper currencies into the safe haven of physical gold and silver.  The COT report, as per Trader Dan, adds more evidence to support the view of a big move in gold soon.

UPDATE:  This highly esteemed James Turk published commentary which echoes the view about a possible summer rally:  "Few people expect silver prices to rise during the summer, which is normally considered a quiet period for precious metal prices. Maybe the big surprise this year will be a spectacular summer rally for the precious metals. After all, that is what the silver chart is telling us."  I recommend reading his commentary HERE

Russia Adds 5.7 Tonnes of Gold In April; Golden Truth 1 - BAC 0...

Just in:  Bloomberg posted an article that reports Central Banks expanded their gold holdings the most since 1964:  LINK  Wonder what that means?  The world was on a fractional gold standard per Bretton Woods back then...

Russia's insatiable appetite for gold accumulation continues in April:

(Chart courtesy of Richard Nachbar, http://www.coinexpert.com/ - click to enlarge)

On another note, last Friday Bank of America poo poo'd the massive, record outflow of capital from the high yield market.  I commented HERE that historically it was a bad omen for the stock market when hedge fund money races out of the junk bond market.  Since last Thurday's close thru right now, the Dow is down 6.7% and the SPX has dropped 7.3%.  

And today Bloomberg reports this:  "The loss in junk bonds this month is on pace to exceed the 3.47 percent drop in February 2009, which was last year’s worst. It is on course to be the biggest drop in the market since the debt tumbled 8.43 percent in November 2008" LINK.  Wall Street analysts typically suck in their market assessments.  B of A sucked in junk bonds back in the 1990's and it's good to see that nothing has changed since then.

Have a great weekend.  If I get off my lazy ass I'm going to put together a post on the housing market.  In the meantime Happy Friday

WTF? - Here's the Deal...

Follow the money. I like to track the price spread between the SPX 500 and gold. It gives me easy information about the directional flow of smart money, which operates behind the smoke blown by the turd-brains on CNBC, Bloomberg and trading chatboards. On April 1, the SPX closed at 1173 and gold closed at 1127 (front-month futures basis for both) - a 46 point spread. Today, the SPX closed at 1070 and gold closed at 1182. Between April 1st and today, gold has outperformed the SPX by 158 points. The SPX is down 8.8% and gold is up 4.9% in this time period. Hmmmm, the numbers show a much different story about the markets than is being portrayed by the pathetic Wall Street apologists.

Hear that sucking sound? That's the sound of Asia, specifically the Chinese, sucking all of the gold and silver that the reality tv watching American zombies are selling into cash for gold companies and now an operation being set up in Sears/Kmart by an affiliated Chinese company. And by many accounts, including this one from Clusterstock.com: LINK, the Chinese people can't exchange their fiat currency for gold and silver fast enough. I find it fascinating that both Europe and Asia, two civilizations with several centuries more history and experience with the precious metals than America, are buying the stuff hand over fist, while the consumption-happy Americans are all too willing to unload their last vestiges of real money in exchange for fraudulent pieces of paper that allow them to go buy faux-luxury goods and appliances at Sears and Kmart.

The dollar. I know I've been early on this call, but I now believe the dollar has finally rolled over:

(click on the chart to enlarge)

A recent poll reported on Bloomberg showed 97% of all money managers were STILL bearish on the euro and bullish on the dollar. How come no one is talking about the short euro/long dollar trade being too crowded? Given that the big banks have been buying all the euros being sold by funds, and selling dollars to all the buyers, the higher probability bet here is to get long the euro and short the dollar. I can't recall since the internet stock bubble when fund manager/public sentiment was this massively skewed in one direction.

And finally, we all know that Goldman Sachs has taken it upon itself to fund the bailout of Obama's favorite ghetto-home-mortgaging bank, ShoreBank, in Chicago. But is this really a bailout with good intent by Goldman or does the firm look at it as an investment with a huge payoff? Obama apparently has close ties with this bank. Let's say that the Government originally were to settle its SEC lawsuit against GS for $1.5 billion. But now Obama steps in and works out a $1 billion settlement. Goldman effectively "earns" $500 million in exchange for the roughly $50 million that it is thought to be ponying up to save the failed bank. A 10x payout. Helluva deal there. My only question, and it's strictly rhetorical, would Goldman have saved this bank if McCain were in the White House instead of Obama?