Hedge funds short mining stocks are going to get roasted – John Hathaway

Yesterday in Gold and Silver

Gold's high price in Far East trading came minutes before 3:00 p.m. Hong Kong time and from there it was a long, slow decline of about eight bucks…and then it bounced off $1,430 a couple of times.

But once the London p.m. gold fix was in at 3:00 p.m. GMT  10:00 a.m. Eastern, the gold price rose twenty bucks in a bit over an hour and then spent the rest of the New York trading session gaining another five dollars…closing virtually on its high of the day. Volume was not overly heavy which I'm always glad to see.

When the silver chart came up on my screen yesterday morning, I wasn't at all surprised by what I saw. Silver also had its high in the Far East at 3:00 p.m. Hong Kong time but silver's low came in London at twelve noon right on the button, which is the London daily silver fix.

From that low, silver never looked back and tacked on over a dollar closing [like gold] virtually on its high of the day. Relatively speaking, silver's volume was much higher than gold's.

The dollar traded within twenty-five basis points of its 75.90 opening price in Far East trading on Tuesday morning which is 6:00 p.m. in New York on Monday evening and closed the day basically unchanged. You don't need a fancy degree in anything to tell you that the dollar's price action had little bearing on precious metals prices yesterday. And, as has been the case lately, the scale of the dollar chart make the price activity look more dramatic than it really was.

The gold stock buyers were out in force yesterday and, for a change, the gold stocks behaved like silver stocks with impressive gains across the board. The HUI, which was up an astonishing 5.04%, closed virtually on its high of the day.

The silver stocks did very well, too…but not as well as I was expecting, considering the price gain. More than a handful were only up a fraction of a percent…but the usual stalwarts turned in huge gains. One of the junior silver producers that I own shares in, had the audacity to close down on the day! Look how spoiled I've become.

Here's Nick Laird's "Silver Sentiment Index"…which has now officially broken out to new highs. Let's hope that this is a sign of more good things to come.

It was another sleeper of a day over at the CME yesterday as their Daily Delivery Report showed that a magnificent 4 gold, along with 14 silver contracts, were posted for delivery on Thursday.

For a change, the GLD had an addition yesterday. It was 48,755 troy ounces and there was no report from SLV but, based on the price action lately, I'd say that the SLV is owed silver and it's just a matter of how much and how fast it can be delivered.

The U.S. Mint had a very small sales report yesterday selling another 3,000 ounces of gold eagles and nothing else.

Over at the Comex-approved depositories on Monday, they reported receiving 11,333 ounces of silver but shipped 173,155 troy ounces of the stuff out the door, for a net decline of 161,822 ounces.

Here's a Casey Research chart that was sent to me by Washington state reader S.A. It's my personal opinion that the 1980 high in 2011 dollars is supposed to be in the $165 price range but $110 is a nice jumping-off point.

Here are a couple of graphs that Nick Laird over at sharelynx.com slid into my in-box late last night along with these comments "Hi Ed, E-Bay's base price for Silver Eagles is now over $40 and they have few sales happening – the volume of sales has dried up by 80%. Silver has doubled since August. If gold had done the same it would now be $2,600. We shall be patient. Cheers, Nick"

The Wrap
While there is no discernable concentration of positions in oil or other important commodities, the concentration on the short side of COMEX silver is a national disgrace. Anyone trying to pin high silver prices on the speculative longs has got a fancy song and dance routine of an explanation in front of him.Silver analyst Ted Butler – April 2, 2011

The net gold volume traded yesterday was around 155,000 contracts…but the $22 rise in the gold price produced an ugly preliminary open interest number of 25,288 contracts which is monstrous. It's obvious that this gold rally is not going unopposed and most of yesterday's price action did not involve much short covering. I'll be checking the final o.i. numbers on the CME's website later this morning and have my fingers crossed.

Monday's final open interest number in gold was a relief when I saw it down 5,122 contracts as the preliminary number was not very happy reading. I'm hoping for the same result with Tuesday's final number, but not holding my breath.

Silver's net volume yesterday was a bit over 70,000 contracts, which is pretty chunky even for a price rise of that amount. The preliminary open interest number is 4,608 contracts. I was prepared for worse and, along with gold's final o.i. number, I'll be checking silver's final number with equal care.

Monday's final open interest number in silver showed an increase of 1,814 contracts. Both Ted and I were a bit surprised at this, as the price action on that day didn't seem to warrant an increase, at least of that size. Ted will reserve judgment until Friday's Commitment of Traders Report.

Speaking of that, yesterday's big day was also the cut-off for this Friday's COT report and it will be of great interest to see what changes in open interest are reported later this morning as whatever is reported, will be in that report. It's just another reason why I'm more than interested in Tuesday's final o.i. numbers.

The backwardation in silver changed a bit after yesterday's price action. The premium has risen to six cents for some delivery months stretching all the way out to July 2013 and the backwardation between April 2011 and December 2015 is now down to about 56 cents. I'm not sure what this means in the grand scheme of things, but I'll keep an eye on it.

Here's the 1-year silver chart. You can see that we're back into overbought territory again in silver but that condition can last for quite some time, if past rallies are any indication.

Here's the 1-year gold chart and yesterday's big price spike sticks out like a sore thumb. Gold isn't even remotely close to being overbought at the moment, so there appears to be lots of room to run if the bullion banks are prepared to allow it.

Neither gold nor silver did much in Far East trading and that trend has continued into the London open. I would suspect that most of today's drama in the precious metals market will come during New York trading. It certainly did in gold yesterday and I don't expect today to be much different.