Alea Iacta Est… The Die is Cast

As I mentioned in my closing remarks in yesterday's column… the U.S. bullion banks showed up in the Globex market in Hong Kong's afternoon trading session and did the dirty there for a few hours.  Buyers showed up right at the London open and stopped the decline, but then another not-for-profit seller showed up just before lunch time over there… and dropped gold another nine bucks or so.  This proved to be the low of the day… around $1,206 spot… and it occurred about an hour before Comex trading began in New York.

Gold gained about $14 back between the London low and 12:00 noon in New York… only to roll over into the close of floor trading.  But, at precisely 2:00 p.m. Eastern time, a buyer showed up and ran the gold price up almost $20 in the space of an hour.  This turned out to be the high of the day at $1,230.40 spot.  It would be my bet that this was short covering.  After that flurry of excitement, gold closed quietly… down about a dollar from Monday's close.

Silver got hit as well… and basically at the same times as gold.  Silver's low of the day came moments after the London silver fix at noon local time… around $18.61 spot.  From there it rallied 50 cents to its high of the day… $19.14 spot… which was shortly after 11:00 a.m. in New York.  Then, like gold, it fell until precisely 2:00 p.m. Eastern time before gaining about 30 cents along with gold's $20 rally.  Silver actually finished up nine cents on the day.

The dollar's graph from yesterday is below.  The dollar gained [and then lost] about 80 basis points between the beginning of trading in the Far East on Tuesday morning… and the London p.m. gold fix at 10:00 a.m. in New York.  From that point, the dollar had a blistering rally… up around 145 basis points until its zenith at around 7:30 Eastern time yesterday evening.  It has since rolled over a bit now that Far East trading for Wednesday is about half done.  But, dear reader, if you need any further proof that the gold/dollar link has been broken… you only have to look at this graph… as there's no sign that the dollar's activity on Tuesday had any bearing whatsoever on the price of the precious metals.

I just love the stability of the world's reserve currency… how about you?  Here's the 3-year graph to put the current dollar rally into some perspective.  It's a sight to behold, isn't it?  But this time gold is rallying right along with it.  Let me ask you this… which would you sleep best with owning on a long-term basis… an ounce of gold, or $1,212 in U.S. dollars?  Or how about the one ounce gold and the fiat currency of your choice?

The precious metals shares pretty much followed the gold price yesterday… with the bottom coming at precisely 2:00 p.m. when the big rallies in both metals began.  Although the HUI finished down 0.75%… considering what was going on in the general equity markets… we should, once again, count our blessings.

Well, Monday's big smack-down of both gold and silver by the bullion banks, gave some strange changes in open interest.  I was expecting anything from down a bit… to down quite a bit.  Neither happened.  Gold open interest rose a whopping 14,940 contracts… driving total open interest up to 601,014 contracts.  Silver's big decline also produced an increase in open interest… this time it was up 1,677 contracts.  Could the bullion banks having been going massively long while the tech funds were puking up their long positions?  It's possible, I suppose.  But, I have decided, after much discussion with Ted Butler, that I will no longer comment on daily changes in open interest in this column… as it's impossible to interpret what's actually going on if the bullion banks decide they want to hide their tracks bad enough… which is what they're doing now.  Only Friday's Commitment of Traders report will be used when discussing changes in open interest from now on… because at least there's some hard information and a report that [hopefully] tells all.

The CME's Daily Delivery report showed that 51 gold 24 silver contracts were posted for delivery on Thursday.  The list of issuers and stoppers is here.  There were no reported changes in either GLD or SLV… but the U.S. Mint had more sales to report yesterday.  They sold another 11,500 one-ounce gold eagles… 1,000 24-k gold buffaloes… and another 75,000 silver eagles.  Month-to-date sales for these three items are 92,500… 55,000… and 2,456,000 respectively.  Without a doubt, most of this is heading to Germany.  The Comex-approved warehouses reported receiving a huge amount of silver on Monday. It was 2,297,430 troy ounces to be exact… and virtually all of it went into the Brink's depository.

Well, I see that the Central Fund of Canada closed its U.S. $375,705,000 Class A Share Issue yesterday.  The final gold and silver numbers were pretty much what I originally guessed at.  The final total in gold was 157,732 ounces… and in silver it was 7,886,624 ounces.  The gold they'll get within a week or so… but the silver???  It would be my guess that it will be many moons before they receive the last good delivery bar.  The link to the story is here.

I see in a Reuters story filed from Frankfurt that the European Central Bankreported that "Gold and gold receivables held by euro zone central banks fell by one million euros to 286.697 billion euros in the week ending May 14th… the ECB said on Tuesday.  Gold holdings fell because of sales of gold coin by one eurozone central bank, the ECB also reported.

Here's a story that I lifted from the kitco.com website yesterday morning.  It's a story from The United Arab Emirates website business24-7.ae.  The headline reads "Gold sales for Indian festival rise 11 percent"… and the link is here.

Nick Laird over at sharelynx.com sent this chart out on the Internet yesterday… and I thank reader U.D. for bringing it to my attention.  It's another graph where the saying "a picture is worth a thousand words" is more than applicable.  It's an 80-year graph of the Dow… and it speaks volumes to those who care to listen.

Here's an interesting tit-for-tat story that was sent to me by reader Dennis Miller.  It's a letter sent by Gary Pierce, one of Arizona's utility board members, to the mayor of the city of Los Angeles.  Apparently Los Angeles City Council voted to boycott the state of Arizona over its new immigration-enforcement law, and now the Arizona Corporation Commission has responded… courtesy of Mr. Pierce.  The letter is short and to the point… and a copy of the original letter is attached as a pdf file in this piece that's posted over at hotair.com.  The headline reads "AZ utility board member responds to LA boycott over SB1070"… and it's worth the read… and the link is here.

Well, all hell broke loose in Europe when Germany moved on Tuesday to clamp down on speculative trading as it sought to ease market volatility that many believe has helped cause the current crisis hitting Greece and the eurozone.  Germany's securities market regulator BaFin immediately banned naked short sales of certain securities, in particular the government bonds of the 16 countries that use the euro.

I have two stories on this.  The first is from Australian reader Wesley Legrand and is posted over at yahoo.com… and bears the headline "Market chaos warning after German ban on shorting".  This story was originally posted at The Telegraph in London.  It's a must read… and the link is here.

The second story is posted at Bloomberg.  The headline reads "Swaps Soar on Germany's 'Act of Desperation': Credit Markets"  This, too, is a must readpiece… and the link is here. German Chancellor Angela Merkel said… "In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win. The speculators are our adversaries.”

And I have a story on the Greek bailout from a unique perspective.  The former head of Germany's Bundesbank [Buba]… Karl Otto Pöhl… is interviewed in a piece that appeared in yesterday's English language edition of Germany's spiegel.de. The headline provocatively reads "Bailout Plan Is All About 'Rescuing Banks and Rich Greeks'"… and I'm sure it won't win him too many friends in high places.  I thank reader Roy Stephens for bringing it to my attention… and now to yours.  It's worth your time… and the link is here.

Sponsor Advertisement
Toronto-based Inter-Citic Minerals Inc. (TSX: ICI) is a gold exploration and development company, developing what could be one of China’s largest open-pit gold deposits. Inter-Citic’s 279 sq km Dachang Gold Project in Qinghai Province, China, with 50,000 meters of drilling underway in 2008.

The total NI 43-101 compliant Inferred Mineral Resource Estimate at Dachang now stands at 2.9 million oz Au contained (approximately 25 million tonnes with an average grade of 3.6 gpt Au), with more drilling underway on the DMZ to further define the existing 43-101 inferred mineral resource estimate in preparation for a scoping study, as well as additional drilling in highly prospective new areas focused on resource expansion. Gold mineralization in the Dachang Main Zone begins at surface and has not been significantly drilled below 150 meters, and numerous known areas of surface gold mineralization on adjacent and other parts of the property have the potential for further discoveries. The Dachang Main Zone itself remains open at depth and along strike.

Under a 30-year joint venture agreement with the Qinghai Geological Survey Institute (QGSI – the provincial geological survey body), Inter-Citic has a fully-vested 83% interest in the property, with 17% belonging to QGSI. Inter-Citic has a further option to increase its total interest to 90% at pre-feasibility. The Dachang property consists of several exploration license areas. They have all been renewed by the Company as they have come due in regular course. The business license for the Dachang Gold Project is currently valid to December 26, 2033.

Learn more here.

Here's a Bloomberg story about the British inflation rate that was sent to me by reader Scott Pluschau.  " Bank of England Governor Mervyn King downplayed the threat of inflation after consumer prices jumped at the fastest annual pace since 2008, saying the surge is “temporary” and masks slack in the British economy."  If you believe that, dear reader, I've got a bridge to sell you real cheap.  The headline reads "King Says U.K. Inflation Jump ‘Temporary’ as Rate Reaches 3.7%"… and the link is here.

I've saved the best for last… as I normally try to do.  This is the headline story to today's column.  It was posted at the website of Matterhorn Asset Management out of Zurich.  Written by Egon von Greyerz… the Latin headline reads Alea Iacta EstThe Die is Cast.  And indeed it is, dear reader.  This is one of the best articles I've had the privilege to post this year… and not only is it a must read from beginning to end… you should give it as much distribution as possible.  Dave Galland mentioned this in his Daily Dispatch yesterday… but I'd received a copy of it earlier in the day from reader U.D… and was itching to give it the exposure it deserved in today's column.  So top up your coffee… then click here.

Of course, pretty much everything contained in that essay is what we at Casey Research have been going on about for years now… but it's nice to hear from a European perspective.

Remember democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide. – John Adams, letter to John Taylor, 1814

Well, the bullion banks set a new low price for gold and silver for this move down again yesterday… and they've already repeated that process in mid-afternoon trading in Hong Kong… with the low of the day in gold [for the moment, that is] set at exactly 2:00 p.m. Hong Kong time.  Silver's low came about two hours later.  From those lows, both metals are showing signs of life in early London trading… but we all know that the bullion banks are still there… and it's only a matter of time before they make their presence felt… which they did in silver around 9:30 a.m. in London… smacking it down to a new low somewhere below $18.50 spot.  This should come as no suprise, as silver is the center of the universe for the bullion banks… and they're trying to cover as much of their groteque short position as they can… especially JPMorgan.

Options expiry for the June contract is this coming Tuesday… and the last day of trading for the May contract will be next Friday… with first day notice for the June contract coming on the following Monday… May 31st.  It wouldn't surprise in the slightest if the bullion banks went all out between now and the end of the month… but they appear to be running out of aces no matter what they do.

I'm still as happy as a clam being 'all in'… and the world's economic, financial and monetary events are all going in my favour.  I hope you, dear reader, have placed your bets in the precious metals arena.  The bullion banks have been kind enough to put both gold and silver [and their shares] on sale for a little while longer… and I urge you to take full advantage of that.

The best place to start if you haven't, is with an investment in either Casey's Gold and Resource Report or Casey Research's flagship publication… theInternational Speculator.  It's money well spent… with a 90-day refund policy.  How can you lose?

I'm sure it will prove to be another interesting day for both gold and silver when New York opens this morning.

See you tomorrow.