Comex Open Interest Update...

As I mentioned in my late day addendum to yesterday's Comex post, I misread the product calendar in my haste to get a post written and jumped the gun on when first notice day is.  Today is first notice day so anyone not capable of receiving delivery of their position has to be out. 

Yesterday saw a bigger liquidation of December gold/silver than I would have expected given that gold/silver were pretty strong, relatively speaking.  With that said, the open gold o/i for December now stands at 15,195 contracts or 1.51mm ounces.  Given that the total available-to-deliver amount of gold stands at 2.6mm ozs, if even half of the open contracts take delivery, it will stress the Comex and likely push the price of gold higher.

In silver the open interest is 5,428 contracts.  This is 27.1mm ounces vs. the 48mm ounces available to deliver.  This is 56% of deliverable silver.  Again, if even half of the contracts demand delivery, the Comex will feel stress and the price of silver should squeeze higher.

Just for the record, many of us believe that the Comex is fraudulently reporting its actual amount of physical inventory in gold/silver.  Ted Butler has pointed out that SLV had a 6 million ounce withdrawal of silver last week and is speculating that this silver may be possibly intended to help cover silver deliveries on the Comex.  JP Morgan, not coincidentally, is the custodian (safekeeper) of the silver in SLV and just happens to be the largest short interest in paper silver on the planet, both via Comex futures and OTC derivatives.  You can make your own assumptions there.  It also just so happens that only 56 delivery notices were posted in silver yesterday - about 1% of the open interest - compared to gold notices which totalled 5,016 - about 33% of the open gold interest.

Again, the banks who are on the hook for deliveries have until the end of December to deliver.  Typically most of the deliveries occur early in the delivery period.  There's really not any good reason to not deliver the goods as soon as possible - that is, unless you don't have it in hand.  I will point out that our fund, twice in the past 18 months, did not receive our silver delivery until well after the contractual delivery period.  HSBC was the counterparty both times.  I have received emails from readers over the past year describing the same experience.  I think we can all see what is going on here and I believe it's part of the reason the metals are flying today.

Must-Read Here On Ireland/Europe...

This guy writes great commentary which is succinct, provides keen analysis and is 100% on the money.  The bottom line is that the "financial" crisis unfolding in both the Europe and the U.S. is of a banking nature.  That is, big banks fueled by absurdly easy monetary policy by Central Banks, have loaned impossibly excessive levels of debt to both Governments and the private sector:

So we must focus on the banks, because they are at the heart of the real crisis...The importance of Ireland is that is the biggest cross-border banking debtor of all the PIIGS.  If the Irish banks are not saved, the European banking system will probably go under, and soon, without waiting for the pressure to mount on Portugal Spain and Italy...

Here is the link:  Bad bank loans

In other words, the U.S./Euro solution to the financial meltdown occurring behind the scenes is one of excessive credit and catastrophic public policies being implemented by the U.S./EU.  To paraphrase a famous quote:  "it's the banks' money but it's the public's problem."  This is was TARP/QE round 1 did in the U.S., shifting a massive amount of money from bank balance sheets to the Treasury.  QE2 is doing the same and soon we will get TARP2.

Understanding the truth behind the rhetoric will enable everyone to understand why gold/silver is so resilient in the face of a big dollar dead-cat-bounce-rally.  At some point the markets will realize this and gold/silver will begin another meteoric rise. Sooner rather than later would be my bet...

The Comex May Have A Problem...

Note:  a commentor pointed out that tomorrow is first notice. I made an error in reading the product calendar on the CME website, which can be found HERE.  My bad.  The analysis below is still relevant, as I bet there was not a lot of liquidation today.  We'll find out for sure tomorrow.  Thanks to the reader who pointed out my mistake.

I have to allow for the typical accounting revisions that the Comex sometimes makes a day later. BUT, right now based on the o/i for gold and silver, the Comex is potentially insolvent.

Friday being the day before first notice, anyone with an account not funded to take delivery of a long position has to either sell or be liquidated by the end of last Friday's access session. I know this because I had a silver position liquidated a few years ago when I forgot what day it was lol. Any open long positions as of this morning are capable of taking delivery of gold and silver.

With that said, the open gold o/i as of this morning is 59,412 contracts. This translates into 5.9 million ounces. The Comex gold inventory shows only 2.6 million ounces of gold registered and approved for delivery. There is a total of 11.4mm ounces.

In silver, there are 17,208 open contracts. This translates into 86 million ounces. The Comex reports 48.5 million ounces available and approved for delivery, 107.2 million total ounces.

What does this mean, in the context of the cartel being unable to force liqidate a majority of the open gold/silver positions? Everyone reading this can use their imagination and I'm not willing to predict how this will unfold, but right now the Comex has a problem.

Silver (and Gold) May Be Set-Up To Launch and the HUI To Do A Moonshot

Friday's action in the metals was quite predictable and a look "behind the headlines" reveals some interesting information.  I had mentioned to several colleagues after this week's option expiry, in which the cartel failed to slam the metals below key call option strike prices, that if a lot of the in-the-money call holders exercised and took delivery of their contracts the metals might get slammed during Wed/Fri low volumn trading.  I guess it was another lucky guess on my part per yesterday's ambush.

As it turns out, Monday is "first notice" day for December gold/silver.  What this means is that anyone with a long position has to either sell their position by yesterday's access close OR have an account that can 1) to accept delivery (most online trading futures accounts to not allow this) and 2) if the account can take delivery, it has to be fully funded to accept a delivery notice as of Friday evening.  What typically happens leading into the day before first notice is that the cartel will make an aggressive attempt to force the market lower knowing that many smaller traders will be natural sellers going into the day before first notice.  Moreover, the thin volumn on Wed/Fri makes this task a lot easier - ergo yesterday's action.

With this as the context, a couple of data points in silver and gold could make next week very interesting - to the upside.  First, as of Wednesday, there were 28,000 open silver contracts.  Yesterday's ambush may have forced most of those to sell (see the previous paragraph).  Preliminarily, and I do not put a lot of faith in the Comex "prelimary" open interest report, only about 7900 December silver contracts liquidated.  That would mean about 105 million ounces are standing for potential delivery.  The Comex would default if this were to play out like that.  It is likely that the silver contract liquidation was closer 20,000 contracts.  We'll find out Monday mid-morning.  That would leave 8k contracts standing, or 40mm ounces.  That is still about 80% of the silver reported to be available for delivery. If that scenario plays out, the price of silver is going to explode over the next couple of weeks.

The second interesting piece of data was reported yesterday evening by zerohedge.com.  Right at the close of the afternoon electronic trading session, someone bought 2000 contracts of February gold.  I don't think I've ever seen something like that in 9 years of doing this sector exclusively.   That is an enormous purchase.  It was either desperate short-covering ahead of news that could propel the metals higher next week or a very big player has decided to square off against the egregiously corrupt maneuvers of JPM/HSBC.  You can read about that trade and some interesting volatility color here:  LINK

Are gold stocks poised to stage a big move higher?

The answer to this depends on which the way metals move.  I've posted a chart which shows the ratio of the HUI to gold over the past year.  The chart shows the relative price performance between mining stocks and gold.  As you can see, the ratio is roughly in the middle of its trading range for the past year.  It has bumped up against resistance again and appears to be headed lower.  If this is the case, the mining stocks are likely to outperform gold/silver for awhile.

(click on chart to enlarge)

If my trading scenario for higher gold/silver outlined above plays out, the mining stocks should really start to move higher in December.  From a technical/fundamental standpoint, I would argue that the metals are set up to rally big-time.  We have already seen that the Fed/Treasury are willing to do whatever it takes in terms of monetizing the system in order to stimulate a big holiday season and keep the economy from collapsing.  Furthermore, the Fed typically injects a lot of extra short-term liquidity into the banking system via repos in December for several reasons, not the least of which is to fuel a year-end/January-effect rally in the stock market.  Gold and silver will smell this if it occurs again and will outperform the stock market to the upside.  The mining stocks will do that times-2.  

In addition, with Europe melting down again and the geopolitical climate heating up (see the Koreas, the U.S./China battleship tension and the China/Russia currency announcement), I think we can expect a considerable flood of global money to seek shelter from fiat currencies and reckless Government policies everywhere.  Layer on top of that the Islamic world returning from an extended religious hiatus, which will likely create a bullish influence on the metals.  And finally, the sentiment indicators in the precious metals, using several metrics, have plummeted in the past week.  From a contrarian perspective, this is usually quite bullish.

So, will the metals/mining stocks move a lot higher in December?  I have no idea - anything can happen.  I would suggest though that the conditions are set up for a possible significant move higher.  If that is the case, you want to be positioned accordingly because once this freight train leaves the station, you will have a hard time convincing yourself to jump on board.

Ssssssss...They're Slowly Letting All The Air Out Of Bank Of America

Here's the chart:

BAC had another ugly day today on very large volumn relative to its average volumn over the past 30/90 days.  Some of the biggest holders have folded their tent and it sounds like more are following.  Right now BAC's price is being "managed" lower in that neatly defined downtrend channel above.  Check out the TRIX indicator, a momentum indicator which "slows" down the direction the trend oscillations.  It's good to use when looking for clues to longer term trends. 

BAC is now solidly below its 50 and 200 day moving averages.  That is also very bearish.  Fundamentally it would appear as if this fraud-riddled carcas is getting ready to be snuffed.  They ("they" being Geithner and Bernanke and Henry Paulson) stuffed Countrywide and Merrill Lynch - two hugely fraudulent Wall Street creations - into BAC in order to shift the burden of monetizing the fraud onto the Government.  Now they'll go in for the kill and bury all the evidence, just like so many before it:  Enron, Refco, Amaranth, Lehman, and Bear Stearns.  Of course, first they'll let the Pimpcos of the world flip fraudulent mortagage paper back into BAC as per the terms of the mortgaging servicing agreements under which BAC is liable.

I am playing this using May 2011 8-strike puts. If you are invested in any mutual funds which list BAC in the top-10 holdings, you should get rid of those funds now - the managers do not know what they are doing.

Quote of the Decade?

The question most often asked of gold bulls is, “At what price will you take your profits?” It is a question that betrays a lack of understanding about why anyone should own gold. Nevertheless, the simple answer must be, “When paper money stops losing its value”. This response should alert anyone who asks this question to the idea that owning fiat cash is the speculative position, not ownership of precious metals.

That one gets my vote. The author is Alasdair Macleod, and his must-read commentary can be found
HERE. I highly recommend bookmarking his website. I recently discovered this Scotsman's commentary and have found it to be among the most value-added material in cyberspace.

On another note, as I have previously suggested and per the observations of several other long-time precious metals market participants, the "character" of this market seems to have significicantly transformed since August.  By this I mean that it would appear, at least for now, that the usual suspects who have been suppressing the price of gold/silver for over 30 years seem to have lost, to a high degree, their ability to keep the metals from moving higher. This, despite an avalanche of bearish articles and commentary which have deluged the mainstream media.

With tomorrow's Comex options expiry looming, the open interest in gold/silver calls/puts is set up to keep silver below $27 and gold below $1350.  At this point it looks likely, barring some kind market torpedo tomorrow, that they will fail.  I have to believe GATA is getting the hospital stretchers and body bags ready for delivery to the Comex trading floor tomorrow...

While The U.S. Prints And Spends, Russia Loads The Boat With Gold...

This chart is sourced from Casey Research, Ed Steer's Gold and Silver Daily.  The Russian Central Bank purchased another 600k ozs of gold in October (some is purchased on the open market, some is purchased from internal mining production).  I think the message of this chart, combined with China's demure announcement about accumulating a lot more gold, is pretty clear:  get ready for some kind of gold-based currency standard at some point down the road.

(click on chart to enlarge)

Year-to-date Russia has accumulated 4.6 million ounces.  That's roughly 131 tonnes.  That's a lot of gold, especially considering that the ECB sold barely any of the 400 tonnes permitted under the Washington Agreement.  Now we know why the IMF decided to unload 404 tonnes.  Think about where the price of gold might be if the IMF had not supplied the world this year.

I mentioned earlier in this week in the comment section that it was my belief that, other than France, the EU Central Banks are largely out of gold - either via leasing or outright sales.  Anyone who has studied this topic thoroughly, of course, knows that it is likely that most if not all of the U.S. gold is either sold or leased.  Given the aggressive and large-scale accumulation underway by China, Russia, Iran, et al, 2011 should prove to be a very interesting year for anyone who has already positioned themselves ahead of what will inevitably be a substantial move higher in the price of gold, especially as valued in U.S. dollars.