U.S. to Declare War on Iran?

Tuesday morning trading in the Far East saw a slowly rising gold price until the dollar caught a bid on the euro's woes… and from there, gold went into a long, slow slide to its low of the day [$1,145.40 spot] a few minutes after 9:00 a.m. in New York.  Then gold headed higher with a vengeance until minutes after London closed for the day… and from there, gold basically traded sideways until shortly after 2:00 p.m. in electronic trading, when another rally erupted taking gold to it's high of the day at $1,173.80 spot..  Then, either the selling stopped, or a big seller showed up to take five bucks off that price into the close of New York trading at 5:15 p.m. This was an eye-opening performance for gold on options expiry… and May isn't even a delivery month.  Volume was extremely heavy.

Without seeing what happened in the silver market, an outside observer would have assumed the same price pattern for silver [and all other precious metals as well]… but they would have been oh so wrong!  The pattern for silver was identical to gold right up until minutes after London closed for the day.  This was silver's high price point for Tuesday at $18.43 spot.  Gold went on to set a new high price for 2010 from this point… but silver got hammered.  All of silver's New York gains disappeared in a couple of hours… and the low of the day for silver [$18.05 spot] was a few minutes before Comex trading ended.  From there, silver rallied a bit… but still finished down on the day.  Tuesday was options expiry for silver… and the New York bullion banks tried every trick in the book to get the May call options to expire out-of-the-money… but didn't quite make it… but probably came close enough.  However, if any or all of these option holders decide they want to convert to futures and take delivery, they can.  It only remains to be seen if they do or not.

As I mentioned in my opening sentence, the U.S. dollar was on a big bull run yesterday.  From the moment that trading began in the Far East very early on Tuesday morning [Monday evening in New York], the dollar gained about 120 basis points right up until 5:30 p.m. yesterday afternoon… almost 24 hours later… which was about 15 minutes after the close of electronic trading for Tuesday.  Half an hour after that, trading began anew on Wednesday morning [today] in the Far East.  But that mattered little to events in the precious metals market, as any co-relation to the dollar ended abruptly at about 9:15 a.m. yesterday, when all the precious metals made their moves… both up and down.

As I've pointed out before, the price of the precious metals are becoming detached from currency fluctuations, as the metals have basically been re-monetized… and are trading as currencies on their own merits… which is exactly what they should be doing.  They would be even more detached if the bullion banks weren't screwing around in these markets.

Considering the fact that the equity markets were in the toilet yesterday… I'm quite happy with the performance of most precious metals shares yesterday… and even most silver companies did well.  The HUI was only up 0.62%… but let's count our blessings.

Monday's rather lackluster day in the precious metals market brought the same dichotomy in open interest numbers that we had on Friday's big day.  Monday's gold open interest rose another 4,392 contracts on very light volume of 95,250 contracts… minus about 4,500 roll-overs.  Silver, of course, went the other way… with its open interest down another 1,456 contracts.  Volume was heavy of course.  The final figures showed that a whopping 60,683 contracts were traded… of which a hair over 25% were roll-overs into future months.  Open interest for silver at the end of Monday's trading was down to 20,218 contracts, and will show another big decline when Tuesday's preliminary numbers are released in a few hours… at least a few hours from the time I'm writing these words.

In several conversations with Ted Butler yesterday, he made mention of the fact that not only was volume big in gold… there was probably massive increases in open interest… as the bullion banks went short all comers once again.  But, on the other hand, they may have been the buyers yesterday!  But we won't get a sniff of those open interest numbers until later this morning… and that will tell us a lot.  I'm just hoping that all changes for Tuesday's trading are reported in a timely manner… because whatever numbers are reported, will be in Friday's Commitment of Traders report… as Tuesday was the cut-off.

The CME's Delivery Report yesterday showed that 149 gold and 12 silver contracts were posted for delivery on Thursday.  The list of yesterday's issuers and stoppers is linked here.  The GLD ETF showed a minor increase yesterday.  This time it was 19,575 troy ounces.  The SLV ETF was unchanged.  The U.S. Mint had nothing to report… but over at the Comex-approved depositories, they showed that 319,369 ounces of silver were removed from their collective warehouses on Monday.

According to the usual New York gold commentator… The European Central Bank weekly statement of condition showed no change in either "gold, or gold receivables" for the previous week.

The only gold story I have for you today, dear reader, is this release from GATA yesterday.  The headline reads "Business Insider exposes IMF's gold cover-up".  At the urging of GATA and Sprott Asset Management CEO Eric Sprott, Business Insider reporter Vince Veneziani recently put five specific questions to the International Monetary Fund about the IMF's supposed gold reserves… questions similar to those put to the IMF by GATA's secretary treasurer Chris Powell in April 2008.  The answers should be no surprise.  There are a lot of links in this GATA release, so I hope you can give this commentary the time it deserves… and the link is here.

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Not only do I have a lot of stories today, I'm reprinting something that David Galland had in his Monday commentary at Casey's Daily Dispatch… so today's commentary will certainly be longer than my Tuesday offering.

The next story is a Bloomberg piece sent to me by reader Scott Pluschau.  The title says it all.  It reads "Harrisburg, Pennsylvania, Council Told to Consider Bankruptcy".  The thin edge of the bankruptcy edge is getting thicker by the day.  It will take you just under five minutes to read this… and the link is here.

Despite my best intentions, I have three stories about the "Great Vampire Squid" today.  The first is an absolute must read… and is courtesy of the usual New York gold commentator.  It's a piece posted over at ritholtz.com and is headlined "10 Things You Don't Know [or were misinformed] About the G.S. Case".  Barry has a few things to say, starting with this comment… "I put together this list based on what I know as a lawyer, a market observer, a quant and someone with contacts within the SEC."  At the end of the article [which isn't very long] he puts his money where his mouth is.  As I said at the beginning of the paragraph… this is a must read… and the link is here.

The next story about G.S. comes from Internet website huffingtonpost.com.  Although the title is a little melodramatic to suit me, the author has an interesting take on Blankfein's testimony before the Senate's committee.  The headline reads "The Death of Goldman Sachs".  Well, it ain't dead yet, but maybe it has lost a couple of tentacles… but at this point, I wouldn't bet any money on it.  This is a short read… and the link is here.

And lastly is the stunning story on G.S. that's posted over at borowitzreport.com. The headline reads "Somali Pirates Say They Are Subsidiary of Goldman Sachs".  The experts say that this could now make prosecution of the pirates very difficult.  It's only a handful of paragraphs… and it's a must read… and the link is here.

And now for the big 'cut and paste' from David Galland's Monday commentary at Casey's Daily Dispatch.  It's an issue that I've alluded to several times in the last year or so… but David really does a number on it here.  His headline reads "U.S. to Declare War on Iran?".  I urge you to give this commentary your full attention.

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Because it’s important on any number of levels, we periodically comment on the ongoing 3-D chess game now being played out in the Middle East, including that involving the attempt to keep Iran from becoming the next North Korea. Which is to say, bad guys with big guns.

In the case of Iran, there was an article last week in the Christian Science Monitor that made the interesting point that a U.S. embargo on gasoline sales to that nation, an embargo now being pushed forward in the halls of Congress, is nothing less than an act of war. And could lead to war. Here’s an excerpt and a link:

Congress is moving quickly to force Obama into blocking gasoline sales to Iran over its nuclear ambitions. A US naval blockade is the only real way to enforce that. And from Iran's point of view, that means war.
By the Monitor's Editorial Board / April 23, 2010

In this post-9/11 age, the idea of preemptive war against a terrorist-prone country supposedly went out of favor after the 2003 US invasion of Iraq.

Yet Congress is now pushing President Obama toward steps that could easily be interpreted as an act of war against Iran over its nuclear ambitions.

The House and Senate are moving quickly on a bill to force US sanctions on the sale of gasoline to the Islamic Republic of Iran. In theory, the measure would only punish US and foreign companies that export refined oil products to Iran which, despite being a major exporter of petroleum, lacks sufficient oil refineries.

But there’s a big problem: The only way to really enforce such a crippling sanction against the Iranian economy would be through an American-led naval blockade which, by international law, is an act of war.

In recent days, Iran’s regime has made it pretty clear that it is preparing to fight such a blockade, if it comes to that. Iran’s Revolutionary Guard Corps began a five-day sea, land, and air military exercise April 22 in the Persian Gulf and Gulf of Oman. The war games may even extend to the Strait of Hormuz, the watery chokepoint through which a fifth of the world’s oil flows on giant tankers, and which is guarded by the US Navy.

History is instructive here: It was a US ban on the export of oil to Imperial Japan for its invasion of China that triggered the 1941 attack on Pearl Harbor. And a US naval blockade of Cuba in 1962 almost led to nuclear war with the Soviet Union.

Also on April 22, the House of Representatives voted by a huge 403-11 margin to set a deadline of May 28 for an agreement with the Senate on the gasoline sanctions. In the Senate, too, patience with President Obama’s slow and often faltering approach to Iran is running thin.

“We have waited long enough for diplomacy to work,” says Senate majority leader Harry Reid. “Iran is a festering sore in the world.”

Here’s the link to the full story.
One way or another, the West seems to have its sights set on laying Iran low, giving that nation no more credibility to its claims that it wants to use its nuclear capabilities only for civilian purposes than it did to Saddam Hussein’s that he had no weapons of mass destruction.

Something has to give here, and in that it sure doesn’t look like it’s going to be the Iranians’ determined stance on uranium enrichment, a new war involving America is a very real possibility.

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The next story is posted at the heraldscotland.com website.  I knew that South Africa was going down the tubes… but until this story showed up, I didn't know just how quickly it was happening.  The opening paragraph reads… "A leading black South African ­commentator has uttered the dreaded “Z” word, a sentiment that has been considered too terrible to think for ordinary people, and considered near-treasonous in the upper reaches of the ruling African National Congress."  Well, now it's been said.  The headline states "Is South Africa Turning Into Zimbabwe?" It's a bit of a read… but definitely worth your while… and the link is here.

The last two stories are about the spreading sovereign debt crisis, not only in Greece, but the other PIIGS as well.  The first story is courtesy of reader Roy Stephens and is an item that appeared in yesterday's edition of The New York Times.  Greece's credit rating was lowered to junk status yesterday… and the panic and fear in European capitals was palpable.  The headline of this story reads "Cuts to Debt Rating Stirs Anxiety in Europe"… and the link is this story is here.

Later on Tuesday evening, Ambrose Evans-Pritchard at The Telegraph in London weighed in with his own piece on the unfolding debacle.  Here the headline reads "ECB may have to turn to 'nuclear option' to prevent Southern European debt collapse".  The European Central Bank may soon have to invoke emergency powers to prevent the disintegration of southern European bond markets, with ominous signs of investor flight from Spain and Italy.  The situation is getting uglier by the hour, dear reader, and I can't see this crisis lasting much longer without something blowing up… or freezing up.  This is a must read article… and the link is here.

We have gone past the point of no return.  There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day. – Jacques Cailloux, chief Europe economist, Royal Bank of Scotland… 27 April 2010

Well, dear reader, things are circling the drain much quicker now.  There is no possible way out of this except the three options I keep mentioning… 1] a deflationary depression, 2] a hyperinflationary depression or, 3] a massive upward revaluation of the gold price in order to increase the asset side of the ledger for the European Central Bank et al.  Sooner or later, gold will be the only option left… but it's obvious that things will have to get a lot worse before that happens.  But at the rate things are going right now, that may not take long.

It should be no surprise that the gold price in Euros hit a new record high yesterday.  Here's the  one-year $Gold:$Euro chart.

This should speak volumes to you, dear reader.  It says you should buy more silver and gold… and take physical delivery asap!  You should also be buying the stocks in companies that mine this sort of money… and there's no better place to start then Casey's Gold and Resource Report… or Casey Research's flagship publication… the International Speculator.  It's my opinion that time is running out… and I'm ever so happy to be 'all in'… and have no intention of changing from that investment posture.

The CME has posted preliminary volume figures for Tuesday's trading activity in both gold and silver… and they read as follows:  Gold volume was a very high 199,470 contracts, of which about 9,000 were roll-overs.  Silver traded a chunky 61,299 contracts…of which around 30% were roll-overs.  Open interest for May fell 3,542 contracts to 16,676 contracts… but I expect that will be revised downwards rather significantly when the final figures are posted later this morning.

Far East and early London trading volume [as of 5:55 a.m. Eastern time] showed gold around 25,800 contracts for June… net of roll-overs.  Trading in silver is a heavy 7,500 contracts… but over 70% of that volume is switches from the May contract into July.  This is no surprise.

The gold price isn't do much of anything… but is trending downward at the moment… and I see that silver got creamed the instant that Hong Kong trading ended for the day… and the dollar is in a rally mode at the moment… up about 32 basis points.

Open interest numbers will be something to see when they show up on the CME's website later this morning.  I'm expecting the worst for gold… and [considering Tuesday's price action] it's impossible to even guess what happened to the o.i. in silver.

Yesterday's trading activity did not disappoint, as it was even more 'wild and wooly' than even I expected… and I'm expecting the same sort of activity until the New York markets close on Friday afternoon.  So hang onto your hats.

See you on Thursday.