Good evening Ladies and Gentlemen;
Gold closed up by 13.00 to 878.40 and silver rose by 7 cents to 16.62. The gold shares rose in fine fashion today with the XAU climbing by 6.33 points to 182.33
The open interest on gold comex rose again despite gold's fall yesterday. Silver's OI declined marginally.
Oil spiked early in the session up by 3.00 to 126.00 and then it reversed all the way down to 120.00 and then it went back up to close at 124.40 a barrel. It is quite evident that the authorities want oil prices down. The cavalry were called in but the cartel sounded the retreat trumpet as oil rebounded from its nadir of the day to close at a very respectable 124.40.
My son Lenny and I thought that gold was going to be hit today. We were already bracing ourselves for a loss of 10-12 dollars .
The cartel selling of gold has no profit motive for them . They keep supplying paper at lower and lower prices. They care not at what price they sell gold at.
However to our surprise this morning we found gold up at the start by 2.00. At the comex opening in fell to go in the minus column and then boom, gold starting to rise and took off and at one point was up 20.00. After the London fix , oil was tagged and thus gold and silver followed in sympathy. However something spooked the gold cartel and I will try and explain what I think happened today.
As many of you know, I follow the TIC report. This report is hardly commented upon. However it is very significant and many foreigners watch this figure at well. The TIC represents the flow of capital into the country. The USA has a trade deficit of 58 billion dollars officially, but I bet it is in reality somewhere around the 66 billion deficit. The service sector deficit is about 15 billion dollars. Thus the usa needs to attract approximately 81 billion dollars per month to finance its twin deficits. We learned a few days ago that the budgetary deficit for the first 5 months is 265 billion dollars. We refer to the twin deficits as: 1. current account deficit and 2. budgetary deficit.
In plain English, the usa needs to attract approximately the amt of its current account deficit to stay afloat and keep the dollar form sinking.
Today, the TIC report for March showed a massive outflow of 67 billion dollars. This is not an inflow but an outflow.
If you were to look at the Fed's balance sheet, one would find that foreigners refused to lend to usa banks. This was around the time of the Bear Stearns collapse. Thus the total deficiency for March is in reality the 67 billion dollars that left plus the 81 billion in current account deficit column. The total dollars leaving were thus 148 billion dollars. How did the Fed finance this loss?
They increased their TAF auctions and printed the missing money.
I will wait patiently to see next months figures. If the TIC continues to decline or shows a massive outflow, you can bet the farm that the game is over.
The long bond yield will rise appreciably and this will send JPMorgan to the showers as their derivatives will burst. These guys have made a one way bet on interest rates to the tune of 91 trillion dollars. A lower dollar will send the bond yields into the strasophere (prices plummeting). Reg Howe has the data and will be reporting shortly on the derivatives as reported by the BIS on the banking sector. It will not look pretty.
As for the reason oil rose and then reversed course and then finally went back up..nobody knows. However it is rumoured that the commercial banks are now deeply involved in the oil market trying to repair their balance sheets. They need oil up in price.
The second big news story came out of the Empire report which is a report on the manufacturing sector of the usa.
With the dollar quite low in April one would expect that the manufacturing sector to be booming. No, the report showed a huge decline with a reading of negative 3.2 instead of a flat zero. Industrial production fell a huge .7% the biggest drop in over 3 years.
And this is with a usa dollar low!!!!! On top of this the Philly Fed also reported a huge drop in activity in their neck of the woods.
The reading came in at 15.6 negative. The consensus was for a negative reading of 19.00 as Pennsylvania is taking it on the chin as the recession deepens .
To show you that the economy is contracting, we witnessed that commercial paper continues to fall. It has contracted for the last 7 weeks as banks are still trying to repair their balance sheets. For the week ended May 14.08 commercial paper fell by 19.7 billion dollars. As commercial paper contracts, the banks must call in all their loans. This is why the economy is totally lethargic.
Yesterday, we heard from Paul Voelker and this banker gave a gold friendly speech to Congress. Bankers rarely promote gold but he stated that the usa is back to conditions which surrounded him in the 1970"s.
Today we heard from Berbanke. He sounded alarm bells by telling banks that they should "maintain generous cushions", and
remain proactive in capital raising activities.
I guess the credit crunch is far from being over.
Home builders today see no end to the crisis in their industry. The usa building sentiment is at an all time low.
Tomorrow is option expiry day and expect much volatility. You can bet the farm that the cartel will raid gold. However someone or some small commericals or some sovereign nation is lurking picking up contracts. Mr Ted Butler has discovered that smaller commercials are picking up gold contracts but the larger commercials continue to supply the paper.
Lets see what tomorrow will bring.
Speak to you on Saturday morning early. I will then be off to L.A. to see my good friend Mark Goldberg and find out all about the gold coin market.
see you on Saturday
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