Massive Short Squeeze at Hand in Gold and Silver Markets

YESTERDAY IN GOLD AND SILVER

Gold was up about $7 by the time that Hong Kong trading was through for the day on Friday, but by the time that floor trading began in New York at 8:20 a.m. Eastern time, those gains had vanished… despite the fact that the dollar had declined about 25 basis points up to that point.


Once the job numbers were released, the dollar headed south as gold and silver prices headed north.  But the moment that London closed for the weekend, the gold price basically flat-lined until shortly before 4:00 p.m. Eastern time.  Then, in the space of 15 or 20 minutes, it tacked on another eight bucks or so… hitting its high of the day [$1,417.00 spot], before closing almost at that high.  This was highly unusual gold price behavior for a Friday afternoon.

Silver's price path was very similar to gold's… as the silver price graph shows.  Like gold, the standout on the silver price chart was the steady increase in prices after electronic trading began in New York after the floor close at 1:30 p.m. Eastern time.  Silver closed nearly on its high of the day… which was reported as $29.43 spot.  This is another 30-year high closing price for silver.

The world's reserve currency really took it on the chin yesterday.  As I mentioned in the gold commentary, the dollar was down about 25 basis points going into the Comex open at 8:20 a.m. yesterday morning… and then fell of a pretty big cliff the moment that the job numbers were released.  The dollar closed virtually on its low of the day… down 115 basis points.  Ouch!

While on the subject of the dollar… here's the 1-year chart.  It looks pretty ugly.

The gold shares climbed rapidly to their high of the day, which was around 11:15 a.m. Eastern… and then basically flat-lined for the rest of the trading day.  The HUI was 3.02%.  We'll take it.  Here's the 5-day chart of the HUI for the week that was.  We'll take that too!

It was another interesting CME Delivery Report yesterday.  767 gold contracts were posted for delivery on Tuesday.  The big issuer was JPMorgan with 448 contracts in its client account, along with another 294 contracts in its proprietary trading [house] account.  Deutsche Bank was the big stopper with 563 contracts stopped [received] in its house account.

In silver, a smallish 64 contracts were posted for delivery.  The link to all this gold and silver delivery action is here.

The only ETF action yesterday was a small withdrawal of 13,415 troy ounces of gold out of GLD.  That might have been a fee payment.  There was no sales report from the U.S. Mint.

There was a fair amount of activity at the Comex-approved warehouses on Thursday… and at the end of the day… 270,989 ounces of silver had been withdrawn.  The link to that action ishere.

Yesterday's Commitment of Traders report for silver was a bit of a surprise… but after a quick chat with Ted Butler, I understood what happened.  On the surface, the numbers showed was that the bullion banks in the Commercial category of the COT report had gone short another 2,917 contracts… which is 14.6 million ounces of silver.  Ted looks far deeper into this report that I can see.  What he said was that the 'velociraptors'… the traders in the Commercial category other than the '8 or less' bullion banks… had sold some of their long positions and taken profits.  This had the same effect on the report as a someone going short.  So it wasn't a really big deal after all.

In actual fact, Ted said that the '4 or less' bullion banks actually covered about 500 silver short positions during the last reporting week.

As for gold, the bullion banks decreased their net short position by 6,576 contracts… or 657,600 ounces.  The Commercial net short position in gold now stands at 27.0 million ounces.  The '8 or less' bullion banks are short 28.7 million ounces of the stuff.

Ted said that the standout in this COT report is the fact that the bullion banks have basically withdrawn from the short side of the market.  This is the main reason that prices have been rising… and was certainly true in market action during the past week.

Of course the grotesque short positions in silver and gold held by the '8 or less' traders still exist… and have yet to be dealt with either by delivering into, covering… or defaulting.  The margin calls that went out on Friday must be bleeding the shorts dry… especially the smaller short holders.  The screws are getting ever tighter.

Here's Ted Butler's "Days of World Production to Cover Short Contracts" graph that's courtesy of Nick Laird over at sharelynx.com.