Good morning Ladies and Gentlemen:
Gold closed down by 23.20 to 836.70, Silver fell by 27 cents to 10.61. Yesterday was options expiry, so we expect the cartel to raid these metals to prevent the exercising of options.
They could not fool the gold shares as the xau rose despite gold’s drubbing. The open interest on gold rose by 1122 contracts to 294600. Silver’s OI fell slightly by 266 contracts to 86000.
Over in the comex silver pits, the comex released two days figures and we witnessed approximately 700,000 oz of silver hit. The new total stands at 30.3 million oz to which you must add 1.0 million oz from Nov.’s options exercised. There are another 130 contracts or 600,000 oz left to be hit. As well we have over 550 contracts( 2.8 million oz) exercised for the Jan non delivery month. In total, then we have 30.3 + 1.0 + .6 + 2.8 = 34.7 million oz. There are 77 million registered silver oz.
The comex has not seen one oz of either gold or silver enter their premises. We will have to wait until Dec 31.08 to see if there is any fireworks.
The COT report released after the market closed showed commercials feeding the comex paper in silver and gold. The only supplier is JPMorgan.
Libor fell to 1.50 from 1.53%. Lease rates also fell with the 3 month gold lease below 1.50%. The silver lease rate is just above the 1.5% so silver remains in slight backwardation. The banks are still loathe to lend.
In economic news, you all saw that Congress is going to bail out temporarily the auto industry. They are going to loan these guys 14 billion dollars to help them until Feb. The Dow initially rose on the news but in the end the Dow fell by 26 points. Crude Oil fell at one point to 32.00 but recovered late in the day to 34.50. Strangely, Brent sea oil which is the poorer cousin of the light sweet crude, remained constant at 44.00 per barrel. I have never seen a huge disparity of 10,00. Light sweet oil should be trading at a premium to Brent.
The big news of the day was Goldman Sachs going positive on gold at the Tocom. Here is the link and I will explain its significance:
GOLDMAN SACHS MAKES MASSIVE COVERING OF GOLD SHORTS - GOES NET LONG!
In the December 18 session on the TOCOM Goldman Sachs COVERED an absolutely gob-smacking 1,307 gold short contracts which reduces their short position to just 495 contracts and leaves their long position unchanged at 1,337 contracts and makes them NET LONG – REPEAT, NET LONG 842 contracts. This is an absolutely stunning development! This is the largest net long position they have held ever since I have been tracking the TOCOM data which is almost 3 years. Considering Goldman’s role in the Cartel and links to the Treasury this is of earth shattering significance. It should also be noted that for ANY trader to be buying 1.3 tonnes of gold in a single day it deserves attention, when it is Goldman Sachs it has special significance.
There are more and more signs that the gold market is about to make a very big upwards move.
Goldman sachs entered Tocom trading 3 years ago. At one point, they were 55,000 contracts net short. In Toyko you must declare your long and short positions, unlike that at the comex. Everything over there is transparent.
Goldman has been retreating from their high shorts and slowly removing the short end of the stick and going long on gold.
However, it is clear, that Goldman did not want to be short gold when Obama took office. Goldman is also very aware of the comex inventory in both silver and gold and they are a very strong cartel member if not the quarterback.
There was major behind the scenes rumblings about derivative losses at JPMorgan.
JPMorgan is the huge garbage can that have been collecting all the derivative losses at Washington Mutual, Wachovia, Bearn Stearns, and Lehman Brothers.
In July we saw commodity prices zoom out of control. Now we see commodity prices plummet and this has unintended consequences. Commodity countries are seeing their exports fizzle to zero and this has caused their external deficits to climb. We are now seeing major countries in severe financial problems led by the
All of the above have huge current account deficits and they are short of foreign capital. As you might expect, these guys also have the largest credit default swaps written on them. The largest underwriters of these default swaps are AIG ( now assumed by JPMorgan), Citibank and the leader of them all, JPMorgan.
The default by
If the comex defaults on the 31st of December, JPMorgan will be the defaulter as they hold the largest commercial short position.
We are in knowledge that this is going on behind the scenes.
Many have asked me to explain whether we are in a recession or depression. Are we deflating or are we inflating? Lets get some definitions out there and I will try and explain the difference to you.
Inflation is simply the increase in the money supply chasing too few goods. Price rises generally follow.
Deflation is simply the decrease in money supply (credit) chasing many goods. Prices generally fall.
A recession is defined as two consecutive quarters of no growth or negative growth. Generally we see a fall in GDP of 1% per quarter.
If the contraction from top to bottom is greater than 10%, then we refer to this as a depression.
In a deflation, governments have no control over the economy and therefore all politicians will try their utmost to protect the economy from heading into this dangerous economic spiral.
Today, we are witnessing massive credit contraction (deflation) caused by the banks losing 4-6 trillion dollars due to the subprime, alt a and other credit bombs that have melted.
The fed has been trying to reinflate the economy by pouring liquidity (dollars) into the system. However, defaults are occurring faster than the machines are printing the dollars.
If JPMorgan defaults and as such all their derivatives will blow up. The bill has to be paid, and it will be in the trillions.
If the government decides to print all these trillions of dollars of debt defaults, then we will have massive hyperinflation. The economy will still be listless because of all the banking failures.
We would then witness a stagnant economy with rising prices. The dollar collapses. I call this a hyperinflationary depression.
If the government decides to default on its debt obligations, then foreigners take over asssets and you have a depression. The dollar collapses but will not fall as bad as in a hyperinflationary scene. We remain mired in a depression like
Yesterday, Paulson announced that he needs the second half of the TARP money. This must be classic chutzpah as many Senators and Congressman are furious with Paulson over his change in destination of TARP money. Not a cent went to citizens in need of mortgage money. All of the dollars went to the banks and 88% of the money went to pay for bonuses to the clown heads of the banks.
Barney Frank issued a statement yesterday to that effect. Barney Frank receives the most dollar contributions from the banking sector than any member of the senate or house.
It is interesting that these guys are still trying to pry money despite Bloomberg’s freedom of information on where the TARP money is going. The Fed does not want to release this data.
I leave you with two important passages yesterday. They are self explanatory:
The first from Richard Russell:
Richard Russell sees it this way tonight…
Winding it all up -- The Bernanke Fed has shot its load, Fed funds are down to zero, trillions of dollars have been injected into the economy, bail-outs in all directions. The critical question -- Can Bernanke and Paulson halt deflation and turn it into something resembling inflation? IF they succeed, the we will owe them "the world." If they fail darkness will cover the land, and we may be dealing with Great Depression II. In the meantime, we eagerly search for signs pointing of their success: rising gold, declining bonds, a stable US dollar, and a slowly rising stock market.
The second from Jim Rogers:
Veteran investor says Obama’s agenda will only exacerbate the problem
Paul Joseph Watson
Friday, December 19, 2008
Veteran investor Jim Rogers warns that the policies of central banks and politicians are turning what would have been a recession into a new great depression, and that Barack Obama’s taxation agenda will only make the problem much worse.
Speaking to Bloomberg News,
“1929 was the stock market bubble which popped, we were going into a recession and then the politicians around the world starting making horrendous mistakes which turned it into a depression, it would have been just a normal recession otherwise but the American politicians and the European politicians - everyone got in on the act and that seems to be happening this time too,” said Rogers.
“If that happens, it’s all over,” warned Rogers, adding that the same thing will happen to the U.S. as happened to Britain between 1918 and 1939, which went from being the richest and most powerful country in the world to being a shambles. China would replace America as the great superpower in the 21st century, said
Rogers explained that the only safe haven during such a period would be commodities and precious metals like gold, which always perform well during times of extreme upheaval. Rogers said he had bought a significant amount of gold at the start of its bull run in 2002 and that he hadn’t sold any of it.The veteran investor stated that shortages would translate into a strong comeback for oil, which slipped down to $36 dollars a barrel yesterday from a peak of over $145 dollars a barrel in July.
Have a great weekend.