China Won't Dump U.S. Treasuries or Pile Into Gold

Unbeknownst to me at the time I sent in yesterday's commentary, the low at the Hong Kong close at 5:30 a.m. Eastern time on Wednesday morning proved to be gold's low price of the day. 

That time of day, coincidentally, is the precise time of the London a.m. gold fix.  Gold subsequently gained and lost about $5 in London trading… but the moment that New York opened, the gold price was off to the races.


The price rise even extended into electronic trading after the Comex closed.  Gold's low price at the London a.m. fix was a hair below $1,185… a new low for this move down… and the high [$1,205.10 spot] was in electronic trading in New York late on Wednesday afternoon.  Volume was pretty chunky with preliminary volume showing around 120,000 contracts traded net of spreads and roll-overs.

The silver graph looks suspiciously like the gold graph.  Silver's low at the Hong Kong close/London a.m. gold fix was another low for the move down in silver as well… but once that bottom was in… silver, too, was off to the races.  And, like gold, came close to finishing on its high of the day… which was also set in electronic trading after the Comex close.  The low was around $17.53 spot… about a nickel below silver's 200-day moving average… with the high of the day posted as $18.12 spot.  There was another big drop in silver open interest reported for Tuesday's activity as well.  This time it was 2,314 contracts.  This drop should be in tomorrow's Commitment of Traders report.  Also, the preliminary report for Wednesday's activity shows that there are 860 contracts still to be delivered in the July silver contract.  That's 4.3 million ounces.

As has been the case for most of the last six months, the world's reserve currency's price action  was completely irrelevant yesterday… as the bullion banks had their way with both gold and silver regardless of the dollar's action… or lack thereof.  And, once again, I provide the US$ chart for entertainment purposes only.

The equity markets were in party mode yesterday… and the precious metals shares were only too happy to join in.  The HUI was up 2.59%… and closed on its absolute high tick of the day.

The $64,000 question now looms.  Was yesterday's price action a bottom in gold and silver?  With new low prices set in both metals, there was certainly more technical fund long liquidation on Wednesday… but is the clean-out complete?  Is there another down-leg to come?  Can the bullion banks squeeze more blood out of these markets?  Is the 200-day moving average in gold still a target for them?  Only the Fed, the U.S. Treasury Department and the bullion banks know for sure. Ted Butler and I talk about this every day… and at the moment we're undecided, but hopeful.

Here's the 2-year gold chart. The 50-day moving average has been taken out with a vengeance… and the 200-day m.a. is a long way down… and even further away after yesterday's close above $1,200 spot.

Wednesday's CME Daily Delivery report showed that zero gold and only 91 silver contracts were posted for delivery on Friday.  The link to all the action, such as it was, is here.  Neither GLD or SLV had anything to say for themselves yesterday… either up or down.  In the face of the absolute pounding that both gold and silver have taken since the first of the month, this is quite amazing… and helps prove that this crucifixion of the precious metals prices was entirely a Comex paper affair by the JPMorgan et al.

The U.S. Mint had no sales to report… and over at the Comex-approved depositories, there was in-and-out action at both Scotia Mocatta and HSBC, USA… with the net result being an increase of 290,228 ounces of silver on Tuesday.  The link to that action is here.

I have another pile of stories for you today… so many in fact, that some of them will just have to wait until Friday.

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I'll post my only non-gold related story first.  It was sent to me by reader Scott Pluschau.  It's a Bloomberg offering bearing the headline "Allstate CEO Says State Borrowing 'Out of Control'".  This should be no surprise to you, dear reader.  "Nobody has the intestinal fortitude to actually move forward to try to change anything," CEO Wilson said of government debt at the federal, state and local levels. "They're just sort of sitting there waiting for disaster to happen."  And disaster is exactly what they're going to get.  The link to the story is here.

We know that all the world's fiat currencies are being debased against gold and silver.  Here's a chart of just how badly paper money has fared against gold since the beginning of the year.  It was sent to me by James Anderson over atgoldsilver.com yesterday.  Just about every currency you can think of is on this list… plus a few that even I hadn't heard of.  The chart is titled "Race to Debase: Middle 2010".  This is well worth looking at… and shows just how severe the debasement has really become against the "ancient metal of kings."  The link to this must read table of numbers is here.

In the same vein, so to speak, is this graph provided by Nick Laird over atsharelynx.com.  It shows how the various paper currencies have done against gold since the year 2000.  The reason for owning physical gold and silver could not be clearer.

Here's a story that I actually dug up on my own over at mineweb.co.zayesterday.  There are very few main-stream stories about silver coming out of any country, but here's one that was posted from Mumbai on Tuesday.  The headline reads "Indian silver imports poised for strong recovery".  Here's a short paragraph from that article… "Traders in the bullion market said silver imports into India are set to recover this year from the 1,000 tons of a year ago, though June did not witness any imports of the white metal. In a good year, India can import up to 4,000 tons of the precious metal. Traders pointed out that the surge in silver was based on its traditional role as an investment alternative to gold, with investors seeing silver as providing better relative value."  The difference between a good import year and a bad import year appears to be in the neighbourhood of 3,000 tonnes… a hair under 100 million ounces… or 130 million ounces if 4,000 tonnes is actually imported. I'd bet some serious money, dear reader, that the silver to meet that potential demand [if it does materialize] doesn't physically exist.  Even if they imported only half that… an extra 1,500 tonnes [about 48 million ounces]… that would blow the silver market right out of the water as well.  We shall see… and the link to the story [which is well worth the read] is here.

Late on Thursday night, The Wall Street Journal came out with a story about the BIS gold swaps bearing the headline "Central Banks Swap Tons of Gold to Raise Cash".  The story was sent to me by Washington state reader S.A.  But because the story was subscription protected, I wasn't able to put it up until just now.  It's imbedded in a GATA release headlined "Mystery around BIS gold swaps impugns them as market rigging".  Chris Powell's preamble to the story is worth your time as well… and the link to this must read story is here.

Then, much to everyone's amazement, The Wall Street Journal came out with another story yesterday evening that updated and corrected its report about the gold swaps undertaken by the Bank for International Settlements.  The headline of this story reads "Commercial Banks Used Gold Swaps".  Chris Powell had a few things to say about that as well in a GATA release headlined "Gold swap mystery deepens as BIS gets correction from Wall Street Journal".  Chris's preamble and the updated and corrected WSJ story is linkedhere.

The next story is a Reuters piece filed from Beijing that's a real eye-opener.  The headline reads "China Won't dump U.S. Treasuries or pile into gold".  Now why would anyone ever suspect such an option?  LOL!  The story is definitely worth looking at… and the link is here.

The next gold and China-related story was sent to me by reader Scott Pluschau… and ended up as GATA dispatches before Wednesday was over.  This is a Bloomberg story also filed from Beijing that states "Gold Demand in China Jumps as Stocks Fall, Exchange Says"… and as GATA's Chris Powell said about this story "No wonder China is trying to talk gold down, as there isn't enough for the government AND the people."  This story is also worth your time… and the link is here.

Here's a story that was sent to me by reader 'Greg from the Midwest'.  This also ended up as a GATA dispatch late last night.  The good folks over atnumismaster.com report that, starting on January 1st in 2012, U.S. federal law will require coin and bullion dealers to report to the Internal Revenue Service all gold and silver coin purchases and sales greater than $600. The report is written by David L. Ganz and is headlined "$600 Sale? Get Ready for Tax Form".  Apparently this little jewel was an add-on to the national health care legislation. But there's a new bill being introduced by Rep. Dan Lungren (H.R. 5141), which has gathered over 80 members of Congress as co-sponsors to repeal this section… so we'll see how that turns out.  The link to the story ishere.

Lastly today, is another Jim Rickards interview… this one done by Chris Whalen of The Institutional Risk Analyst. Chris Powell's introduction from his GATA release [headlined "China seen letting U.S. down gently as it prepares for dollar's fall"] of this interview reads as follows… "For an appraisal of China's likely intentions with the U.S. dollar and gold that is more candid than the one proclaimed today by China's State Administration for Foreign Exchange, check out the interview done by Chris Whalen of The Institutional Risk Analyst with James G. Rickards, senior managing director for Market Intelligence at the Omnis Inc. consulting firm in McLean, Virginia. Rickards sees China letting the United States down gently while preparing for the dollar's demise. The interview is headlined "Paper Gold vs. the Dollar? Interview with Jim Rickards".

As you already know, dear reader, anything that Jim has to say is worth your undivided attention… and this piece is no exception… and the link is here.  At the time I linked this story [4:17 a.m. Eastern time] their website was down.  Hopefully it will be up again by the time this column arrives in your mailbox.  If not, Eric King over at King World News [who was the first to give me the 'heads up' on this interview] has the highlights posted at his blog linked here.

The U.S. turned 234 years old yesterday, and yet over half of the nation's money supply was created since Helicopter Ben took over the flight controls four years ago. No wonder gold is in a full fledged bull market. – David A. Rosenberg, Chief Economist & Strategist, Gluskin Sheff & Associates Inc.

Let's hope that yesterday's recovery in the both the gold and silver price was a sign of things to come… but there are no guarantees, of course.  Not much happened in Far East trading earlier today… and what little gains gold did make, have already disappeared.  Silver is also showing signs of weakness in early London trading.  Volume in both metals is pretty average as of 5:39 a.m. Eastern time.

But its what happens in New York trading that really matters… so we await the Comex open in about an hour's time.

I hope your Thursday goes well… and I'll see you tomorrow.