Farewell To All The Emperors

Well, the rally that began at gold's low on Thursday morning at 4:00 p.m. in Hong Kong's afternoon trading session, had a few legs… and gold was up about $10 or so by 8:30 a.m. in New York.  Shortly after that, gold really took off and added another $12 or so onto the price before running into the usual brick wall at the London p.m. gold fix at 3:00 p.m. London time… 10:00 a.m. in New York.  From there, gold dipped briefly before running up to another new high, which was the close of trading in London at 4:00 p.m… 11:00 a.m. in New York.

Gold sold off about $8 or so from that high… and, wonder or wonders, continued to climb to its absolute high of the day which was at precisely 4:30 p.m. Eastern time when the interest rate news hit the tape.  Gold fell $15 in half an hour… and basically closed at that price… which was $1,105.20 spot.  And, as I mentioned at the beginning of the previous paragraph, gold's low was at 4:00 p.m. in Hong trading, with a price of around $1,097 spot.

Silver clung to gold's price path like a shadow yesterday.  The low of the day [around $15.64 spot] occurred at the same time as gold's… 4:00 p.m. in Hong Kong.  The only difference between silver and gold price points yesterday was that silver's high price looks like it occurred at the London p.m. gold fix at 10:00 a.m. in New York.  That price was reported as $16.27 spot.

The dollar played almost no part in gold and silver's price activities anywhere in the world yesterday.  But that changed at 4:30 p.m. in New York when the interest rate bomb was dropped… and the dollar tacked on about 83 basis points over the next couple of hours… and has remained flat all through Hong Kong trading and the London open this morning.

The shares were a disappointment.  With good gains in both gold and silver in the face of the IMF gold sales news on Wednesday… a flat to slightly down dollar… and a rising stock market in the New York afternoon, I was surprised that the shares didn't do better.  The HUI only finished up 1.03%.

Open interest for Wednesday showed a drop of 1,512 contracts in gold.  The final volume was reported as 187,846 contracts.  In silver, o.i. rose a smallish 460 contracts… and volume there was 60,833 contracts.  I would bet there was some short covering going on… but we won't get a sniff of those numbers until next Friday.  Today's Commitment of Traders report will be out at 3:30 p.m. Eastern… and if you want to check the numbers the moment they're released… the link to the COT webpage is here.

The CME Delivery Report showed that 311 gold and zero silver contracts are up for delivery on Monday.  There were no changes in either the GLD or SLV yesterday… and the U.S. Mint had nothing to say either.  But over at the Comex-approved warehouses, they reported a smallish 94,511 ounces of silver were taken into inventory.

Today's first story is one that I didn't have room for yesterday.  This is a Reuters piece with the headline "Big traders face 'landmine' in CFTC energy rule"… "Buried deep in the proposal to set position limits on oil and gas futures is a possible "land mine" that could force the industry's biggest traders to make a stark choice: Keep your hedging exemptions, or keep your speculative book. But you can't keep both."  How this all turns out should be of great interest to us who are waiting for the CFTC to hold their hearings into position limits for silver… which they said will happen next month.  So far, we haven't heard squat about it since CFTC chairman, Gary Gensler, mentioned it over a month ago.  Anyway, you can get some idea of the issues to be resolved by reading this piece.  It's worth the read… and the link is here.

Next is a very interesting story that was posted over at cbsnews.com.  "South Carolina Rep. Mike Pitts has introduced legislation that would mandate that gold and silver coins replace federal currency as legal tender in his state."  The headline reads "South Carolina Lawmaker Seeks to Ban Federal Currency"… and the link is here.

Then there's this story from Austin, Texas yesterday about the pilot who launched a suicide attack on the IRS.  This sort of story is very disturbing, but not unexpected…  as there is no U.S. law on the books that requires the individual citizen to pay income taxes.  Texas Republican Ron Paul has said many times that the IRS should be abolished.  I totally agree.  Here's a story about this incident posted over at herald-mail.com… and I thank Casey Research's own Louis James for sending the story along. The headline reads "Bodies found in IRS building hit by plane"… and the link is here.

Here's a Reuters piece that ended up in Toronto's Globe and Mail newspaper on Wednesday.  "Russian Prime Minister Vladimir Putin played down Greece's economic woes on Tuesday, telling his visiting Greek counterpart that the United States were no better than Greece in handling its debt and fiscal deficit… Mr. Papandreou arrived in Moscow amid rumours that the cash-strapped euro zone member may turn to Moscow for financial assistance."  The story, which isn't very long, is headlined "Putin calms Greece, says U.S. debt big too".  I thank reader Doug Beiers for sending me the story… and the link is here.

The next story is courtesy of Australian reader Wesley Legrand.  It's posted at news.bbc.co.uk and bears the headline "UK finances deteriorate further".  It appears that the government had to borrow another £4.3 billion last month to plug the growing hole in the UK's finances."  Usually January is a bumper month for income tax receipts… but not this year.  It's not a long read, and I urge you to run through it… and the link is here.

The next piece is gold related and comes from Casey Research's own Jeff Clark… the Grand Poobah over at Casey's Gold & Resource Reporta $39/year publication I highly recommend.  You can find out more about it by clicking here.  Anyway, he wrote this short [but very excellent] piece on gold production all over the world.  The charts are first rate and they are definitely worth looking at as well.  The story [which is posted at theaureport.com] is entitled "Sooner or Later, You'll Invest Abroad"… and the link is here.

And lastly comes this absolutely must read piece from Murray Pollitt of Pollitt & Co. in Toronto. Murray is the 'grand old man' of Canadian mine finance… and has been around since dirt.  He makes Eric Sprott and John Embry look like newbies in the business.

In his latest market letter, Murray remarks that the world's policy makers lack the courage to accept the discipline necessary to shore up the world's finances. He writes: "Our best guess is that markets, not policy makers, will determine the next monetary system. And, as much for lack of alternatives as the traditional reasons, gold will be somehow involved. Meanwhile markets will be characterized by volatility, defaults, lots of uncertainty, and a rush for the hard stuff. Before they get around to a monetary system, governments will wake up to the need for wealth creation and, since the quick fix for wealth creation is competitive devaluation, we expect governments to get at it with vigour. Shades of the 1930s."  The title reads "Farewell to all the Emperors"… and I thank Florida reader P.S. for first bringing this story to my attention… and the link is here.  Enjoy!

As we all know, the global economic crisis started neither in Greece, nor in Russia, nor in Europe.  It came to us from across the ocean. – Russian Prime Minister Vladimir Putin, 16 February 2010

So… the Fed raised the Discount Rate.  Big hairy deal.  The DR is an interest rate that banks get charged for borrowing funds on an "emergency basis"… it doesn't change other borrowing costs one iota.  As I mentioned yesterday [or was it the day before?] the Treasury department came close to having a failed auction last week, so I guess they don't want to run that risk next week when they've got another stack of Treasury toilet paper to unload.  Here's a short read on that very subject posted over at jessescrossroadscafe.com entitled "Managing Perceptions:  Fed Raises Discount rate After the Close".  It's a handful of paragraphs with a good chart… and the link is here.

Today is options expiry for stocks and, as Bill King said in the King Report yesterday morning… "The scheme all week has been to manipulate stocks… and, more importantly, equity indices for expiration on Friday. The main target of the manipulators is SPY, the S&P 500 ETF. The game has been to push SPY to the key 110 strike, which is 1100 on the S&P 500 index. This was accomplished yesterday. And to reiterate, the volume has been awful this week, which validates our view.  The question now is: Can someone or some cabal trigger a surge in buying enthusiasm by manipulating the E-mini S&P futures so the S&P flies above 1100?" [Good luck to them! – Ed]

And, according to the usual New York gold commentator early on Thursday morning… "This morning The Gartman Letter, brushing aside the IMF story and laying heavy emphasis on the FX Reserve diversification problems of Central Banks, bought back 3 'units' of gold, hedged out in British pounds, Euros and Swiss Francs.  [I'm sure Dennis didn't see the rise in the discount rate coming, either.  I hope he didn't get stopped out later in the trading day when the currencies moved against him. – Ed]

Both gold and silver sold off once trading began in the Far East earlier this morning.  I note that a bit of a rally has begun starting in the usual time Hong Kong time slot… and has spilled over into the London open.  Volume in gold is already a monstrous 44,321 contracts for April [at 4:52 a.m. Eastern time]… and silver's volume is right up there too, at 5,700 contracts for March.

The CME has posted preliminary volumes for Thursday's trading.  Gold traded 202,477 contracts… and silver traded 54,860 contracts.  The open interest numbers for yesterday will be a sight, I'm sure.  I'm also sure that some of the volume and open interest changes that occurred the moment the Fed announced the rate hike, won't be included… as it was pretty late in the trading day when it happened.

As for what is going to happen with the precious metals today, I wouldn't want to hazard a guess.  But I'm more than encouraged by the fact that the gold price is still mostly intact after the IMF gold sale announcement and the Fed rate hike.  This has to be seen as a positive… and that's the way I'm looking at it.  But I'll reserve final judgement on that until after the precious metals market closes in New York this afternoon.

So, blow the froth off a cool one, and watch today's action in all markets from a safe distance.  They could prove interesting.

Have a great weekend… and I'll see you here tomorrow.