Saturday, September 11, 2010

Sept 11.2010 commentary...important

Good morning Ladies and Gentlemen:
Before begining we have another bank failure last night and it came from Bradenton Fl. as Horizon Bank
entered the morgue.  We will report on Monday the amount of fiat dollars the FDIC had to cough up to rescue

Bank Name




Closing Date

Updated Date

Horizon Bank Bradenton FL 35061 September 10, 2010 September 10, 2010
Gold closed down by $4.40 to 1244.50 by 1:30 pm Friday afternoon, the official close for gold.  It did trade in the access market
where it finished the day at 1246.70.  Silver finished down 1 cent to 19.91 in regular trading and 19.88 in the access market.
The cartel banks were intent on keeping gold below the 1260.00 mark and silver below 20.00 on Friday.  The metals were whacked
early but strong physical demand erased early losses.  Silver was especially strong as at one point it climbed above $20.00.
The bankers were not amused and they went to work keeping both precious metal price rises in containment. The bankers got a
little help in that Friday was a Moslem holiday.
The comex gold open interest fell by 6619 contracts to 580,541.Some of the speculators fearing a raid lessened some of their long positions.
The silver comex open interest however continued its drive as again it rose to the tune of 300 contracts to rest this weekend at 140,514
After the markets closed, the CFTC released the committment of traders report and everybody did what was expected,
First, the gold COT report:


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Gold COT Report - Futures

Large Speculators

















Change from Prior Reporting Period


















Small Speculators






Open Interest












(these figures are basis Tuesday Sept 7.2010)
As you can see, the large speculators that were long increased those positions by a large 2858 contracts.
Those large speculators that were short increased those short positions to the tune of 1238 contracts.
And now for our all important commercial sector:
Those commercials that are long increased those positions by a tiny 316 contracts.  These are intermediate bankers
and commercial entities that buy gold from the miners and then resell.  These guys are very active and get a close
look at the supply and demand use for gold.
Those commercials that are short short continued on the merry way, increasing their short positions by a lofty 3435 contracts.
These commercials are always short and they are JPMorgan and HSBC.  As you can see they have no intent on lessening those
The small specs are starting to put their toes in the water.  The small specs that are long increased those positions by 3770 contracts.
Those specs that were short increased their short positions by 2271 contracts.
No wonder a raid was orchestrated by the commercial banks as they pulled their bids in unison on consecutive days this week trying to
dampen silver and gold demand.
and now for the silver COT report:

COT Gold Report - Positions as of

Tuesday, September 07, 2010



Silver COT Report - Futures

Large Speculators

































Small Speculators






Open Interest















non reportable posit

(these figures are basis Tuesday, Sept 7.2010)
In the large speculator category, those that were long increased their positions by a massive 4640 contracts.
Those large speculators that were short increased those positions by 2250 contracts.
And now for the all important commercial category:
those commercials that have been long increased those long postions by 971 contracts.
those commercials that have been short from around 4 BCE until now increased those positions by a massive 3392 contracts.
The small specs also for the first time are entering the silver market.  Those that have been long increased those positions by a rather
large 1233 contracts. Those that have been short increased those positions by 1202 contracts.
In other words, in both silver and gold, everyone increased their holding positions setting the stage for the raid during the week.
The Sept Banking Participation report was released and our good friend JPMorgan was front row centre in supplying all the paper in gold and silver.
Courtesy of Ed Steer:

Well, one of the first things I looked at after my computer was up and running yesterday morning was the September Bank Participation Report for positions held at the end of trading on Tuesday, September 7th.  Even without looking back to the August numbers, I could tell that there was big deterioration in both silver and gold.

In a nutshell... here it is for silver.  '3 or less' U.S. bullion banks increased their net short position in Comex silver by 5,637 contracts from the August report to the September report.  Without doubt, JPMorgan was the culprit.  The '8 or more' Non U.S. banks that hold Comex silver contracts were exactly market neutral... holding the same number of longs as shorts.  However, this is a deterioration from the August report... as that report showed that foreign banks were net long 1,015 Comex contracts.

In gold, four U.S. banks were net short 109,826 Comex contracts in the September report.  This is an increase in net short position of around 11,400 Comex contracts since the August report.  The thirteen Non U.S. banks were net short 20,586 Comex contracts.  This is also a big deterioration since the August report... as the August report showed that these same 13 Non U.S. banks were only net short 9,317 Comex contracts.

From the August report to the September report, these bullion banks [U.S. and foreign] have increased their total net Comex short positions by 6,652 contracts in silver and 29,903 contracts in gold.

And, without a doubt, a lot of the short position increase by the U.S. bullion banks was put on by JPMorgan.  This especially applies to silver where, without doubt, they put on the lion's share of the 5,637 Comex short position increase that was reported by the '3 or less' U.S. bullion banks.

In a report to private clients yesterday, Ted Butler had this to say... "Here's why I think JPMorgan shorted more, putting its head back into the lion's mouth, after closing out a bunch of silver short positions.  I don't think they thought they had any other choice.  On August 24th, the price of silver was around $18 the ounce.  Over the next couple of days it jumped sharply to $19... and then continued to move up from there.  The technical funds were buying aggressively and the Commercials [as a group] sold to them.  Without JPMorgan's additional 5,000 or 6,000 or more short contracts, the Commercials stood a good chance of being over run to the upside.  I'm sure JPMorgan was afraid of this and helped out their collusive commercial brother crooks.  I'm also sure that without JPMorgan's pile-on, the price of silver would have exploded upward."  If you wish to read more about this, you can check out Ted's subscription service here.


I would like to go to the comex inventory and notices to deliver section:
First a little review of Thursday's report:
Withdrawals from Dealers Inventory   72,573 oz
Withdrawals from customer Inventory  354,346 oz
Deposits to the dealer Inventory n/a
Deposits to the customer Inventory n/a
No of oz served  (contracts=148 )    740,000 oz
No of oz to be served 1513  contracts)  7,565,000
Withdrawals from Dealers Inventory 
 487 0z
Withdrawals from customer Inventory   1904 oz
Deposits to the dealer Inventory  n/a
Deposits to the customer Inventory  n/a
No of oz served (contracts = 0  100 oz
No of oz to be served xxxxx  
and now for Friday's change in inventory and notices for delivery:
And now for Comex warehouse stocks Sept 10.2010:
Withdrawals from Dealers Inventory   30,438oz
Withdrawals from customer Inventory  381,412 oz
Deposits to the dealer Inventory n/a
Deposits to the customer Inventory 117,561 oz oz
No of oz served  (contracts=274 ) 1,370,000 oz
No of oz to be served 1544  contracts)  7,720,000 oz
Withdrawals from Dealers Inventory 
 56,547 oz
Withdrawals from customer Inventory   161 oz
Deposits to the dealer Inventory  n/a
Deposits to the customer Inventory  65,204 oz
No of oz served (contracts = 0  100 oz
No of oz to be served 124  12400
Let us begin with gold as Sept is a non delivery month for this metal.
As you can see we add a lot of activity in the vaults.
We witnessed a massive withdrawal of almost 2 tonnes of gold  ie.  56,547 oz of gold from the dealer.
A total of 65,204 oz of gold was deposited into a customer account.  This is what I need to see in order for the settlement of the
gold longs that have been standing for delivery. In other words, all of the 56,547 plus other gold entered the customer for settlement of long contracts.
Zero contracts were served upon our option holders waiting for their metal.
A total of 124 notices are waiting to be served or 12400 oz of gold.
The total number of gold oz served already stand at 115,000 oz for this non delivery month.
It looks like 12,400 option oz exercised are waiting for gold
So the amount standing for gold this month looks like 115,000 + 12,400 or  127,400 0z of gold. 
And now for the delivery month of silver:
Again we witnessed another of those famous adjustments, this time 45,701 oz of silver was returned to the customer
from the dealer in a previous lease.
Again, we see violent activity in the silver vaults:
A total of 30,438 oz of silver were withdrawn from silver vaults but only 117,561 oz of that
was deposited into inventory of a customer to satisfy settlements on their long positions.
Not only that  but a huge 381,412 oz of silver was removed from the customer vaults.
Something is frightening them. ( Probably the 45,701 oz and the 117,561 make up most of the silver removed from the customer vaults.  In other
words as soon as the silver was returned and settled, the owners decided it was in their best interests to remove that silver from a registered
comex vault.)
the total number of notices served on the longs yesterday totalled 274 or 1,370,000 oz of silver.
the total number of notices served thus far this month total 1346 or   6,730,000 oz of silver.
Strangely, the number of notices left to be served ROSE again to 1544 contracts or 7,720,000 oz
The total number of silver oz standing this delivery month is as follows:
6,730,000 oz (already served)  +  7,720,000 oz (to be served) +  115,000 oz (options exercised previous month) =  14.565 million oz.
Unless this is another error on the part of the comex, we saw a massive increase in silver standing from 13.04 million oz to 14.565 million oz
Somebody is in urgent need of physical silver.
The plot thickens!!
In other physical news, the IMF announced another 10 tonnes of gold sold and the party that received the gold was Bangladesh.
From Reuters:

IMF sells 10 tonnes of gold to Bangladesh

WASHINGTON, Sept 9 (Reuters) - _ The International Monetary Fund said on Thursday it sold 10 metric tonnes of gold to the central bank of Bangladesh on Sept. 7, using Tuesday's market prices for the transaction.

The IMF said the sale raised $403 million, adding that it was part of 403.3 tonnes approved for sale by its executive board in September 2009.

The sales are part of plans adopted last year to diversify the fund's sources of income and to increase low-cost lending to poor countries by up to $17 billion through 2014.

The IMF fund has already sold 212 tons of gold to the Reserve Bank of India, the Bank of Mauritius, and the central bank of Sri Lanka, all in November last year.

Thursday's sale is the first to a central bank since last November's sales.

In a statement, the IMF said that at the end of July a further 88.3 tonnes had been sold through on-market sales that it announced in February.

An uncertain outlook for two of the world's major reserve currencies -- the dollar and the euro -- is seen providing a spur for central banks to buy gold.

Earlier this year there were reports China was prepared to buy gold from the IMF, though those reports were disavowed.

While Thursday's sale was modest in size, it drew attention in markets.

"It's only 321,000 ounces, the equivalent of 3,000 COMEX contracts," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC in Chicago. "But it can, in general, indicate that the Asian central banks continue to buy and add gold into their reserves, which over the long term is a very healthy thing" for gold.

More than 120,000 contracts traded on Thursday, making the IMF sale less than 3 percent of a relatively light trading day on the COMEX exchange in New York.

Asian banks' interest in having gold holdings in their reserves offers support for the precious metal's price and may increase as the region's economic might grows.

"They prefer to buy on a break lower, but as the power continues to shift east, they continue to buy it and gold continues to head up over the long term," McGhee noted.

In after-hours trade following the IMF news, U.S. benchmark gold futures GCZ0 trimmed earlier losses to $1,245.90 an ounce on the COMEX division of the NYMEX.

A day earlier, gold futures had ran up to their highest level since June 28 at $1,264.70 an ounce, nearing the all-time high for the spot contract at $1,264.80, hit on June 21.


In summary, the IMF has sold 220 tonnes of gold to India, Sri Lanka and Mauritius and now Bangladesh.
The total number of oz of supposed gold to be sold by the IMF totals 403.3 tonnes of gold.
By the end of July a total of 88 tonnes of gold has been sold.
We know that 18 tonnes of gold was sold at the end of August.
The total number of oz sold thus far equals 326. The IMF therefore has only 77 tonnes of gold left to dispose.
They have been averaging 18 tonnes a month so they have 4 months to go. They will be done by the end of December
instead of January 2011.
I am a little surprised that all of the gold announced to major countries has all gone to the Indian area as opposed to China or any other
Also remember that India and area were official depositories for the IMF gold from the onset, the others being the bank of France, the Bank of England and
the Reserve bank of New York.
The fact that all of the gold announced is going to that part of the world makes me think that this gold is gold returned from loans.
Nothing is transparent here so I am only guessing.  China woud give their eye teeth for gold..yet the IMF is not giving them any.
Regardless, by late december, we will never hear from the IMF again unless they talk about their non existent 2,800 tonnes
that have been double counted on official reserves..
We must wait another few months to see how this plays out.
And now for the big economic stories of yesterday.
You must pay attention to this Financial Times release by Izabella Kaminska.
Goldman Sachs has its teeth into all parts of the government. You can bet the farm that QE II is upon us and thus gold and silver will explode

Goldman anticipates QE2 dollar weakness

.In a further sign that Goldman is putting all its eggs in the QE2 basket, the bank’s FX team was also out on Thursday, recommending quantitative easing-related dollar weakness positions.

As the team headed by Thomas Stolper wrote in a September note:We have seen new and wide-ranging evidence of continued structural weaknesses in the US. This will likely depress US growth in the foreseeable future and lead to more Quantitative Easing by the Fed.

Combined with our above-consensus views for the rest of world, a scenario of US decoupling, improving risk sentiment and broad US Dollar weakness remains the most likely outcome in the medium term, but with important regional variations.In a context of USD weakness, we focus on the EUR, JPY, Commodity currencies and the CNY. In the very near term, however, macroeconomic and political uncertainties continue to dominate Europe, the US and Asia.

During that period we may see more temporary USD strength versus most other currencies, including the EUR. Only those currencies negatively correlated to risk sentiment, such as the JPY, are likely to do well in the near term. We are keeping our forecasts unchanged at EUR/$ 1.22, 1.35 and 1.38, and $/JPY 85, 83 and 90 in 3, 6 and 12 months.For more on the justification of the above view, see here and here.In terms of what to watch to ensure the view plays out, meanwhile, Goldman says:The extent of the slowdown in the US and how the rest of the world holds up is key for our broad moderate Dollar weakness thesis. This has bearings for the US relative monetary stance (especially additional QE prospects by the Fed) and also for overall risk sentiment, which remains an important factor given correlations between the Dollar and cyclical assets.

We also continue to monitor capital flow trends in the TIC data for updates on the underlying demand for US assets.So there you have it.

Goldman seemingly becoming the bank that likes to say "QE2?, and not much else. And recommending positions all round (at least for clients) for mainly that scenario.


As many of you know, JPMorgan and Goldman Sachs announced that they will honour the wishes of the new legislation and cease from proprietary trading.
I have my doubts.  Just look above what Ted Butler had to say about the huge increase in shorts by JPMorgan and company.
Here is a commentary on this issue:

The fate of proprietary trading

Commentary: The biggest bank story no one is writing about


By Thomas Kostigen, MarketWatch

SANTA MONICA, Calif. (MarketWatch) -- This is a big story that deserves a lot more attention from the financial press: J.P. Morgan Chase & Co. announced that it is shutting down its proprietary trading operations. Goldman Sachs Group and the rest of Wall Street have or are in the in the process of following suit.

Proprietary trading accounts for as much as 15% of bank revenue. Considering that annual revenue at J.P. Morgan Chase (JPM 39.76, -0.34, -0.85%) alone is more than $100 billion, we are talking about nixing tens of billions of dollars from Wall Street firms' bottom lines.

Proprietary trading is when a bank trades with its own money (as opposed to its customers' money) to make a profit for itself.

Angry Afghan depositors assail bank

Angry Afghan bank customers crowded outside Kabul's top private bank, demanding to withdraw savings as security forces beat them back. Video courtesy of Reuters.

The Volcker Rule empowered by the Dodd-Frank financial-overhaul law effectively bans proprietary trading and principal transactions along with private equity deal-making and other investing techniques that are used to benefit "the house" -- read Wall Street banks. (The Volcker Rule is named after former Federal Reserve Chairman Paul Volcker who was called in during the economic downturn to review and report on Wall Street's failures.)

No one is particularly crying for Wall Street and banks these days. But shutting down operations that will hurt shareholders (bankers themselves, no doubt, will prevail and profit in some other manner) isn't proper regulation. In fact, it isn't really regulation at all; it's lazy oversight.

Transparency and better financial reporting are far better options when it comes to regulating the banking and securities industries. Yet the government still doesn't seem to get it. People aren't upset because corporations, banks or others, are profiting. We are upset because of the ways in which corporations, banks and others, profit. We are upset at practices that obfuscate and exploit. Shutting down proprietary trading operations will only serve to send financial institutions further down the rabbit hole.

Goldman Sachs (GS 150.39, +1.25, +0.84%), for example, is looking to transfer its proprietary trading business to its asset-management unit, winding down the portfolio entirely, or seeding a hedge fund that would take over the operations, according to various reports.

Good luck trying to figure out whether the bank front-runs client trades, uses inside information to profit, or exploits some loophole in the law. These are the real issues. The government believes nixing proprietary trading will accomplish. Wall Street insiders know better; the business will just go somewhere else. Indeed, look for some shrewd traders to make billions trading these orders on the behalf of Wall Street firms and banks. Easy money.

In any event, it's the issues that regulators should be focused on. The practices themselves are incidental to this.

I've long lobbied for a financial system based on principles as opposed to rules. Volcker, curiously, is with me on this.

Empowering regulators to go after people based on the intent of their behavior as opposed to their actions would give more teeth to the financial police. It would thwart or give pause to wrongdoing and wrongdoers as they would be held to a different standard of accountability. They would be judged in context.

Proprietary trading shouldn't be shuttered, it should just be reported better. Shareholders may like the fact that banks are profiting. And others may learn a thing or two about what banks are investing in and how. They might even learn profit from that type of information for themselves.

Thomas M. Kostigen is the author of "The Green Blue Book: The Simple Water-Savings Guide to Everything in Your Life."

The following is a big story.  It seems that inventory levels increased dramatically last month and triple above estimates.
Since inventory gains are a big part of GDP, an increase in inventories means a big increase in GDP. 
Here is the official reuters story:

US July wholesale inventories jump 1.3 pct

WASHINGTON, Sept 10 (Reuters) - U.S. wholesale inventories surged by the largest amount in two years in July, a government report said on Friday, in a sign firms were anticipating enough demand to boost stock this summer.

Inventories jumped 1.3 percent, the steepest gain since July 2008, and more than three times the 0.4 percent increase analysts had anticipated, a Commerce Department report showed.

Inventories are a key component of gross domestic product changes over a business cycle, and the rebuilding of merchandise stock from record low levels has been a key driver of the economy's recovery from the worst recession since the 1930s.

Economic data suggest the recovery may have lost steam over the summer. However, Friday's report showed wholesale sales rose by a larger-than-expected 0.6 percent in July, suggesting that concerns inventories might be sitting on shelves gathering dust may not be justified.

The inventory-to-sales ratio, which measures how long it would take to clear shelves at the current sales pace, edged up to 1.16 months' worth. It was the highest since February, but was down from 1.27 months' worth a year ago.

and now Jim Sinclair on the buildup of inventories:

Thought For The Day

If markets are ever to be fiddled with it would be when the top dog is talking.

If you use social networking, you are being profiled by Big Brother.


Jim Sinclair’s Commentary

Now you have to sell it.

“According to the Commerce Department, inventories at U.S. wholesalers rose in July by 1.3%, or three times the Street’s consensus estimate. This represents the largest increase in over two years.”


Here are some quotes of the week on gold.  Courtesy of Larry Cohen:

From Congressman Ron Paul, in his weekly ''Texas Straight Talk'' column posted on his House of Representatives website on September 7th:

''As money becomes more plentiful, it becomes less valuable, and the average citizen suffers again as the value of their savings evaporates.  It has happened over and over in history, and what usually follows is the total debasement of the currency, hyperinflation and chaos.

Sound economic policy would be to take our foot off the gas and apply the brakes to government spending as the economic cliff approaches.  We must get back to where our economy produces actual wealth, rather than mere paper wealth.  The road back to fiscal sanity and a strong economy is simple:  Congress just needs to get back to following the Constitution.''

. . . and from Richard Russell, editor of Dow Theory Letters, in remarks posted on his website on September 7th:

''In the big picture, I believe we're going to put fiat money to the test.  Fiat money allowed the US to experience boom.  Fiat money produced the tech bust, the equities bust and the housing bust.  Fiat money is the vehicle that is created and sponsored by the world's central banks.  Fiat money will prove to be a fraud.  Out of the graveyard of fiat money will emerge real intrinsic money -- gold.  But gold's time has not yet come.

The gold bull market is a very strange bull market.  It's a bull market that has progressed without the participation of the US public.  That will change. When it comes, we will finally experience the speculative third phase of the gold bull market.''

. . . and from Matt Whittaker, writing in the ''Commodities Corner'' column in the September 6th edition Barron's:

''Already near fresh records, gold will get a seasonal boost this month, a time of year when it shines brighter due to pending nuptials and year-end holidays.

The yellow metal is within spitting distance of $1,264.80 an ounce, the all-time intraday dollar high for a front-month gold contract set in late June, and that's after a typical summer thinning of trading.  Prices usually are stronger in September, as participants returning from summer holidays refill trading desks and reassess their portfolios.  The metal usually also gets a lift as jewelry makers around the globe stock up on the shiny stuff ahead of the wedding season and religious festivals in India.  That nation is the world's largest gold market; there jewelry isn't just adornment, it's also an investment.  Fabricators also want more gold on hand ahead of the Christmas season in the Western world.

Gold futures traded on the Comex division of the New York Mercantile Exchange have risen in eight of the past 10 Septembers.  They gained 10.4% during the month in 2007, and notably the metal posted a 5.4% gain in September 2008, the month Lehman Brothers collapsed.  Investors bid the metal 5.9% higher last September for its first monthly close above $1,000 an ounce.  It hasn't ended a month below that benchmark since then.''

. . . and from Mary Anne and Pamela Aden, in the September issue of The Aden Forecast newsletter, released this week:

''The real winner this month has been gold.  Once again we saw that when things are uncertain, gold shines.

It doesn't matter if there's concern about deflation, inflation, double dip . . . whatever, gold is showing its true colors as a safe haven, like it has for thousands of years.

In fact, the current environment could not be better for gold.  As gold approaches its all time record high, it thrives in times like this.  And if the Fed kicks in with more stimulation, which is very likely, it'll put even more upward pressure on the gold price.''

Larry Cohen

I think that about does it for the week.
I will see you on Monday.

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