The IMF Creates Another US$500 Billion Out Of Thin Air

Gold was down about five bucks in Far East trading yesterday… with the low coming at the London a.m. gold fix around 10:30 a.m. local time.  From that low, gold rose until 9:00 a.m. in New York trading.  At that point, a huge rally in the dollar began… and the gold price 'fell' from its absolute high of the day to its absolute low… all in the space of two hours and change.  The high was $1,158.30 spot… and the low tick [$1,144.20 spot] was moments after London closed for the day [about 11:15 a.m. in New York] and the exact high of the dollar rally.

From that dollar high, the dollar fell and gold gained… but was still down on the day by the close of electronic trading in New York at 5:15 p.m. Eastern time.

Silver's trading pattern was similar… with its low in Far East trading coming moments before Hong Kong closed for the day.  From that point, silver rose a bit going into New York trading… but the moment that Comex trading began, silver rallied briskly to its high of the day… which was $18.34 spot at 9:30 a.m. in Comex trading.  From there, it 'fell' to its low of the day [$17.95 spot] at the same time as gold… about 11:15 a.m. in New York.  The silver price recovered rather briskly from there, but traded sideways once floor trading was over for the day at 1:30 p.m… and closed unchanged from Monday.

The gold price followed the dollar around like a shadow yesterday… and almost tick for tick as well.  Dollar price changes at precisely 3:00 a.m… 5:30 a.m. [London a.m. gold fix] and at precisely 9:00 a.m. and 11:15 a.m… were matched by gold to the split second.  The big dollar 'rally' at 9:00 a.m. was about 40 basis points from bottom to top.  Gold was hit for $14… and silver got smacked for 39 cents.  Obviously there was more than just dollar activity at work here… as I'm sure the bullion banks pulled their bids briefly… as the graphs clearly indicate that.

The share price action pretty much followed the precious metals prices themselves.  But considering the price swings… the reaction was relatively muted… with the HUI only down 1.03%.

Monday's trading activity in gold produced another open interest increase… this time it was 4,020 contracts.  Final volume was reported as 134,881 contracts.  In silver, o.i. was up a smallish 267 contracts.  Volume was a chunky 40,691 contracts, of which 20% were roll-overs into future months…mostly July.

The CME's delivery report on Tuesday showed that 25 gold and zero silver contracts were put up for delivery on Thursday.  I had to laugh when I saw the numbers, because there were only 4 traders involved as issuers and stoppers… and they were the '4 or less' traders that hold the vast majority of the short positions in gold and silver on the Comex.  Here's the pdf file of the 'usual suspects' all by themselves.  Click here.

There were no changes reported by GLD, SLV, or the U.S. Mint yesterday… and the Comex-approved depositories showed an increase of 748,676 ounces of silver.

According to the usual New York gold commentator… "the European Central Bank's weekly Statement of Condition indicated no change in 'gold and gold receivables' for the week just past.  This is now the norm."

In my first story of the day, I see that even the IMF is now making up more money out of thin air.  In a story posted at imf.org sent to me by reader Ken Metcalfe, come this press release headlined "IMF Executive Board Approves Major Expansion of Fund's Borrowing Arrangements to Boost Resources for Crisis Resolution".  The IMF is announcing another increase of Special Drawing Rights [SDRs] to the tune of 333.5 billion worth… which equates to about US$500 billion.  I ran this press release by GoldMoney founder and GATA consultant, James Turk, yesterday… and this is what he had to say… "SDRs are fiat currency, so why not conjure some of those out of thin air too just like they are doing with dollars, pounds, euros and all the other fiat currencies. It just shows that when there is no discipline on the process of creating currency, more new currency will continue to be created until it is eventually destroyed."  The link to the press release is here.

Here's a story that I stole from yesterday's King Report.  It's certainly no surprise to me… and will be no surprise to you either, dear reader.  It's an Ambrose Evans Pritchard offering from The Telegraph in London.  It's about Greece and the rescue package offered by the EU/IMF.  "Euphoria over a joint EU-IMF rescue deal for Greece worth €45bn (£39.8bn) has given way to caution after angry reactions in Germany and continued concerns among bond investors that any bail-out merely delays the day of reckoning."  And delaying the day of reckoning is exactly what they're doing for Greece… and soon, the rest of the world.  Sovereign debt will bury every nation before this global financial crisis breaths its last.  The headline reads "Euphoria over Greek rescue fades as first cracks appear".  It's a must read… and the link is here.

That was my only story on Greece until Russian reader Alex Lvov sent me this Reuters piece that was filed at 3:41 a.m. Eastern time.  It appears that a German economist plans to launch a legal challenge at the Constitutional Court against the above mentioned aid package for Greece.  This could hold things up for a while.  The headline reads "German threatens legal challenge over Greek aid: report"… and the link is here.

For those of you that follow the "great game" over in Asia… here's an item out of Monday's edition of The Washington Post that you shouldn't miss.  Last week the government of Kyrgyzstan was ousted.  This may not seem like a big deal… but if you read all of the "great game" stories that I put in my column two weekends ago, this is big news indeed.  It's important news for the U.S. even if you haven't read that material… as it may have long-term implications for the U.S. and NATO's air access to Afghanistan.  The headline reads "Russia is said to have fueled unrest in Kyrgyzstan".  It's a must read… and the link is here.

The next item is a fairly short 7-page read by Darryl Robert Schoon.  Borrowing heavily from British economist Peter Warburton's March, 1999 book "Debt & Delusion: Central Bank Follies That Threaten Economic Disaster"… it lays out, in unvarnished prose, the fate of all central banks and their currencies that lie just ahead.  As Schoon says… "When the end comes, it will be a surprise even to those who expect it."  The title reads "Professor Fekete and the Armageddon Signal".  This is also a must read article… and the link to the pdf file is here.

The next item on the agenda is a new interview of Jim Rickards by Eric King over at King World News.  It's all about gold… from one end of the 30-minute interview, to the other.  As you know, dear reader, I have all the time in the world for whatever Jim has to say… and I urge you to find the time as well.  Here's the GATA release on this interview, which gives an executive summary of the interview itself.  Once you've read that, I'm sure you'll consider the interview a must listen… which it is.  The GATA release is headlined "Jim Rickards: Don't keep your gold in bank vaults"… and the link is here.

Lastly is something in the clear from silver analyst Ted Butler.  Since Ted now has a subscription service, the serious silver investor hardly ever gets to hear his expert opinion on the silver market.  Well, here he is in an interview with Jim Cook over at investmentrarities.com.  The interview deals almost exclusively with the prospects for ending the silver price suppression.  The interview is posted over at silverseek.com… and the link to this must read interview headlined "Interview With Ted Butler" is here.

Government is the only institution that can take a valuable commodity like paper, and make it worthless by applying ink. – Ludwig Von Mises

There was a bit of a rally in Far East trading early in their Wednesday morning, but that ran out of steam as the dollar ticked up 20 basis points.  The downward trend ended abruptly at the London open this morning… and both metals are headed sharply higher as the dollar has now rolled over.  How long this happy state of affairs continues, remains to be seen, as the U.S. bullion banks have yet to wade into the fray.

As of 5:29 a.m. Eastern time, volume in gold is a moderate 19,000 contracts for June… and silver's volume is around 3,300 [net of spreads] for July.

Tuesday's preliminary volume numbers have been posted and show that gold traded 140,269 contracts… and silver [net of roll-overs] traded a hair under 30,000 contracts.  Considering Tuesday's price action, I'm not expecting a lot of changes in open interest when they're posted later this morning.

It could be an interesting day for the precious metals when New York begins to trade this morning.

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