Saturday, February 5, 2011

Weak jobs reporty/silver very strong/long bond plummeting

Good morning Ladies and Gentlemen:


Before commencing with our regular commentary, I would like to introduce to you our latest entrants into the banking morgue:


1.North Georgia Bank of Watkinsville Ga

2.American Trust Bank of Roswell GA

3. Community First Bank of Chicago Illinois.


Gold closed down by $4.00 to $1348.80.  Silver on the other hand refused to go along with the bankers antics as it climbed 35 cents to $29.09.


As many of you know, for the past several years, the bankers generally raid gold and silver around the jobs report.  The theory being a strong jobs report improves the USA DOLLAR and thus keeps gold in check.

The jobs report released at 8:30 am showed a miniscule addition to jobs of 36,000 whereas the street was expecting a big addition of 150,000.  The bankers were relentless in their supply of un-backed gold and silver.  Gold retreated but not silver.



Let us head over to the comex and see how trading fared yesterday.

First gold:


The total gold comex open interest rose  by 3830 contracts with today's reading of 466,978 from Thursday's reading of 463,048.  Gold registered a deep outside day reversal to the upside on Thursday and yet the open interest rose by only 3830 contracts.

The bankers were caught a little flat footed.  The front delivery month of February saw its open interest decline from 1880 to 1693 for a loss of 187 contracts.  The deliveries on Thursday registered 312, thus all of the decline in open interest was due to deliveries of gold.

The next front month of April saw its OI rise from 304,834 to 308,547 as speculators came into the market and they seemed ready to take on the crooked bankers.  The estimated volume on Friday was normal at 141,187 contracts.  The confirmed volume on Thursday was a rather robust 206,038. 


And now for silver:


The total silver comex open interest rose by a huge 4,350 contracts, rising on Friday to a high of 130,601 from Thursday's reading of 126,251.  The February options expiry month saw its open interest mysteriously rise from 60 to 86.  There were no deliveries on Thursday so the gain in OI is due to more options that were exercised for silver metal.  The front delivery month of March saw its OI rise from 64,163 to 66,607 and that has the bankers very nervous.  They need to see the front delivery month decline in number.

The estimated volume on Friday was pretty good at 56,682.  The confirmed volume on Thursday with the huge gain in silver (and also a big outside day reversal) registered 79,909 contracts which is extremely high for no switches.




Here is a chart for February4.2011 on deliveries and inventory changes at the comex:



Withdrawals from Dealers Inventory 


Withdrawals from customer Inventory 

415,538 oz

Deposits to the dealer Inventory


Deposits to the customer Inventory


No of oz served  (contracts )  3

1500 OZ

No of notices to be served 83

415,000 oz


Withdrawals from Dealers Inventory 


Withdrawals from customer Inventory 


Deposits to the dealer Inventory


Deposits to the customer Inventory

5,100 0z

No of oz served (contracts 419

41900 oz

No of oz to be served 1274

127,400 0z


Let us start with gold.

The comex notified us that a small deposit of 5100 oz of gold entered the customer's inventory over at a registered comex  vault.

And that was the only activity.  There were no deposits of gold into the dealer.  There were no withdrawals of gold from the dealer and from a customer.

There was a tiny adjustment of 493 oz where the dealer repaid the customer back 493 oz for a prior lease or a prior liability on the part of the dealer.

The comex notified us that there were 419 notices served upon our longs for a total of 41900 oz of gold. The total number of gold notices served thus far this month total 9579 or 957,900 oz

To obtain what is left to be served upon, I take the deliveries of 419 and subtract that total from the February OI of 1693 to give me a total of 1274 notices or 127400 oz left to be served upon.

Thus the total number of gold oz standing in this delivery month of February is as follows:

957,900 oz (already served)  + 127,400 oz (to be served)  =   1,085,300 oz. (Thursday's total 1,072,900 oz ).  We gained 12,400 oz from Thursday's level. In tonnage the amount standing so far is 33.75 tonnes.


Now for silver:

Again we see no silver enter the dealer which we must see so the settling process can commence.  There was another huge withdrawal of silver from 3 major customers at 3 major comex facilities:

customer 1:  withdrawal of 104,740

customer 2:  withdrawal of 300,019

customer 3:  withdrawal of 10,759

total no of oz withdrawn by the customer:  415,538.

Every day we see massive movements of silver in and out of vaults.  Today it was many ounces withdrawn.  There were no adjustments on Friday.

The comex folk notified us that only 3 notices were sent down for servicing for a total of 15,000 oz.  The total number of notices sent down so far this month total 191 or 955,000 oz of silver.

To obtain what is left to be served, I take the deliveries of today  (3) and subtract that total from Friday's open interest in February at 86. Thus 86-3  equals  83 notices or 415,000 oz are left to be served upon.

Thus the total number of silver oz standing in this non delivery month of February  is as follows:

955,000 oz (already served)  + 415,000 (to be served)  =  1,370,000 oz. (Thursday total 1,240,000).  This amount is rising as the month progresses.  If we get back- to- back deliveries of 4 million oz in silver, I cannot wait for the delivery month of March to arrive.







The COT report released last night is very telling.


Here is the COT (Commitment of Traders) report for gold: Feb 4.2011



Posted Friday, 4 February 2011 | Share this article | Source:  


Gold COT Report - Futures

Large Speculators

















Change from Prior Reporting Period


















Small Speculators






Open Interest















non reportable positions

Change from the previous reporting period






This report encompasses most of the raid days of last week.  It  goes from Tuesday to Tuesday last:


Those large speculators that have been long gold could not stand the continual bombardment of gold so they liquidated a massive 20,400 long positions.

Those large speculators that have been short took these opportunity to massively cover 11,005 contracts.  The spreaders did nothing.


And now for the big commercial sector:

Those large commercials that have been long and are close to the physical scene like swap traders and intermediate bankers pitched an awful lot of their gold contracts
to the tune of 21,999. 
And now for our 5 Star General JPMorgan and 4 star General Hong Kong Shanghai Banking Corporation massively covered their shorts by 26,285 contracts.

The small specs that have been long, hardly pitched any of their longs which is a surprise.  They lessened their longs by only 381 contracts.

However the small specs that were short increased those shorts by 5490 contracts.


This has to be the most bullish the gold COT report has been in over 2 years.  The total open interest covered this week amounted to 43,140 contracts.



Let us see how the silver COT played out:



Silver COT Report - Futures

Large Speculators

































Small Speculators






Open Interest















non reportable positions

Change from the previous reporting period


COT Silver Report - Positions as of

Tuesday, February 01, 2011




Please note the difference between the silver players and gold players:


The large speculators that have been long silver hardly pitched their positions.  Only 816 longs lessened their positions

Those large speculators that have been short silver took the opportunity to cover some of their shorts but it was a rather smallish 3270  contracts despite the constant raid.


And now for our famous banker friends, the commercials:


The bankers who are close to the physical scene and are long silver, surprisingly added to their long positions to the tune of 2148 contracts in total contrast to the gold bankers
who pitched many of their long positions.

Now  please get a load of this next commercial report:  Our two Generals JPMorgan and HSBC could not cover as the price of silver fell and added 3803 positions to their shorts.

They supplied the paper but the resolute action of the longs is certainly giving these guys nightmares.  They supplied huge amounts of un backed paper but nobody blinked. They had

to cover at higher prices but the supply they initiated overwhelmed what was covered.  This COT tells me that the bankers are in trouble.


Forgot about the small speculators in silver.  They have been wiped out long ago and have not put their toes into the hot steaming water as of yet.

This game is being played out by large resolute longs going against our 2 banker friends.  March will be the ultimate battle ground  and will be somebody's "Waterloo"


The total open interest declined by only 58 contracts despite the massive raids orchestrated by the banks.







Let us see how our ETF's fared yesterday


The GLD updated their website last night Feb 4.2011:

Total Gold in Trust  Feb 4./2011

Tonnes: 1,228.86


Value US$:


Thursday night the inventory levels were:


Total Gold in Trust..Feb 3.2011

Tonnes: 1,229.28


Value US$:

 Wednesday night they were:


Total Gold in Trust Feb 2.2011

Tonnes: 1,227.15


Value US$:





 The GLD boys were very busy moving their inventory around.  On Wednesday night to Thursday night we gained 2.13 tonnes of gold.

However between Thursday and Friday, the boys decided that there was another fire to be put out to the tune of .42 metric tonnes of gold (  0.42 (metric tonnes / troy oz) = 13 503.3136  oz)

 Usually the fires are over at the LBMA where many are not rolling any of their forwards anymore and are taking delivery of the metal and moving it to their shores, like the Chinese and Russians.

(My number 4 son Stephen taught me on the computer how to change metric tonnes in oz by using google and the word troy oz.  It does the calculation for you.  This should prevent me from making mistakes in the conversion)


let us now head over to the SLV inventory.  Here is Friday's totals:

Ounces of Silver in Trust


Tonnes of Silver in Trust Tonnes of Silver in Trust


Here is Thursday's inventory:


Ounces of Silver in Trust


Tonnes of Silver in Trust Tonnes of Silver in Trust



Here is Wednesday's inventory:


Ounces of Silver in Trust


Tonnes of Silver in Trust Tonnes of Silver in Trust


After losing 976,000 oz on Wednesday, the custodians of the SLV decided that the demand for silver was just too great for them and they could not put out any fires, and thus silver rose!

It could also mean that the silver in their possession is lacking!!  As I pointed out to you on Thursday, the SLV boys are rapidly draining the physical portion of their inventory and

will leave the garbage for the rest of the shareholders.

SEC officials should be racked over the coals over this fraud.


Let us see how are other ETF's fared tonight:


The Sprott silver fund premium  lowered a bit with a reading tonight of 13.75% premium to NAV from 14.42%

The Sprott gold fund saw its positive to NAV  fall to 5.49 premium to NAV., from 6.46%

The central fund of canada saw its positive to NAV  fall a bit to 7.7 % from 9.6%

Seems the world  is very anxious to get their hands on as much silver and gold as possible.  The continual rise in the premium of Sprott's gold fund and its silver fund are also very telling

as the world seeks out physical metal





OK.  It is time for the big newsworthy stories of the day:


The Bureau of Labour Statistics released their report of the number of jobs created for the month of January and instead of the consensus 150,000 added jobs only 36,000 were created.  And that number was also phony.


Here is the report courtesy of Reuters:



U.S. payrolls up meager 36,000, jobless rate falls

WASHINGTON, Feb 4 (Reuters) - U.S. employment rose far less than expected in January, partly the result of severe snow storms that slammed large parts of the nation, but the unemployment rate fell to its lowest level since April 2009.

Nonfarm payrolls grew just 36,000, the Labor Department said on Friday, far less than the 145,000 increase that economists had expected.

The government noted that severe weather could have affected construction payrolls, which dropped 32,000 last month. There were also large declines in the employment of couriers and messengers.

"My view is that the storms interrupted the hiring process. They have not diminished the demand for labor, but made it that much more difficult for both the job seekers and employers to consummate the hiring transaction," said Patrick O'Keefe, head of economic research at J.H. Cohn in Roseland, New Jersey, before the data was released.

The modest jobs gains are at odds with other data for January, which had suggested employment growth was picking up and had raised hopes that the manufacturing-driven recovery was now spreading to other sectors of the economy.

Despite the small increase in payrolls, the jobless rate, which is calculated from a separate survey, fell to 9.0 percent from 9.4 percent in December. The decline is unlikely to discourage the Federal Reserve from completing its $600 billion government bond-buying program to support the economy.

The government revised November and December payrolls to show 40,000 more jobs created that previously estimated.

The labor market has lagged the broader economy, which grew at a 3.2 percent annual rate in the fourth quarter. Fed Chairman Ben Bernanke on Thursday acknowledged the pick-up in the recovery, but said "it will be several years before the unemployment rate has returned to a more normal level."

The payrolls data comes from a survey of businesses, while the jobless rate is determined by a survey of households. The January household survey also reflects population changes, which makes it difficult to determine why the jobless rate fell.

A department official also said 886,000 people in the survey said they did not work in January because of severe weather.

The Labor Department also finalized its annual benchmark revisions to its payroll series, which showed the level of employment for March 2010 was revised down by 378,000.

Last month, the private services sector added only 32,000 jobs after increasing 146,000 in December. The sector accounts for more than 80 percent of jobs in the United States.

Payroll increases in goods-producing sectors rose 18,000, as manufacturing employment grew 49,000, the largest increase August 1998, after rising 14,000 in December.

Government payrolls dropped 14,000 in January, marking a third straight month of declines, pulled down state and local governments.



With this report, I always send down what John Williams writes in his attack on the phony reporting by the BLS:


courtesy of Jim Sinclair and John Williams at


Jim Sinclair’s Commentary

The only by subscription service you must have.

- "Recovery" Since April 2010 Just Evaporated  
- 500K Payroll Jobs Disappeared in Benchmark Revision  
- January Payrolls Were Down 52K But for Upped Bias-Factor  
- Unemployment Rate Distorted by Seasonal-Adjustment Crisis  
- Unemployment: 9.0% (U.3), 16.1% (U.6), 22.2% (SGS)

"No. 348: Labor Conditions and Revisions" 


Williams states flat out that 500,000 jobs evaporated in a benchmark  revision and that January payrolls were actually down by 52,000 souls.

Because many gave up looking for jobs, the unemployment rate fell to 9%.  Even the Governments own U6 unemployment number is still high at 16.1%

The real unemployment/underemployment number calculated by Williams rises to 22.2%  (SGS)


Many are now starting to doubt the government figures.

Here is an exchange on CNBC yesterday between Rick Santelli who gets it and Steve Liesman, the mouthpiece economist for the government.

The author of the report is CNBC's floor reporter Julia Seymour:


-Santelli Slams CNBC Panelists for Spinning Jobs Report

CNBC's floor reporter criticizes 'kool-aid drinkers' for trying to find good news in the 'disappointing.'

  • By Julia A. Seymour
  • Friday, February 04, 2011 10:16 AM EST

Jobs are heading up and down at the same time. The Bureau of Labor Statistics announced the morning of Feb. 4 that only 36,000 jobs were added in the month of January, but the unemployment rate dropped from 9.4 percent to 9.0 percent.

The mainstream news media will likely latch on to the dropping unemployment rate, despite job gains that were less than one-fourth of the consensus estimate of 148,000 jobs added. One of the CNBC panelists noted that the increase was "way below consensus."

CNBC's Rick Santelli even lashed out at some of the CNBC "Squawk Box" panel that were discussing the latest jobs report.

"[W]e have overwhelming evidence the jobs market is disappointing, and all of you are trying to look for that one half of spaghetti in a 50 lb. spaghetti bowl. This is not great data," Santelli claimed. "We know that the U6 probably gives you a better indication of the true unemployment rate …"

CNBC's Steve Liesman interjected: "It went down, Rick. It went down - "

"Yeah, what is it?" asked Santelli.

"It went down Rick, to 16.1 [percent]," Liesman said.

"Oh boy, guys! 16.1 [percent] is probably the unemployment rate. That's cause celebre," Rick sarcastically shouted on the trading floor of the Chicago mercantile exchange.

"But it fell from 16.7," Liesman insisted.

Santelli continued to criticize the spin: "You know what Steve? You and I both know that the unemployment rate, the labor force moving in and out, those giving up, is really probably your best statistical reason for the drop to 9.0 (percent). And in terms of jobs, you, Mr. Steve Liesman, said if you work just one day. If you stay home but you get paid you're counted in the data …"

"Right - it shouldn't be weather," Liesman acknowledged. Some of the panelists including Moody's economist Mark Zandi had blamed weather for drops in construction and other sectors.

"So this is probably less distorted," Santelli concluded.

But the fact that the two different economic surveys conducted by the BLS were moving in different directions was baffling to many. Even the liberal Economic Policy Institute noted on its blog that the picture was "muddled."

"Given the confounding nature of this report, we will have to wait at least another month to see if the labor market is rebounding strongly," Heidi Shierholz wrote for EPI.




Dave Kranzler of the Golden Truth discusses the phony numbers and he is quite accurate as to what is really going on in the labour scene:


Friday, February 4, 2011

Pre-Weekend Comments...

Another lazy Friday today. The post-NFP excitement in the markets dissipated pretty quickly and now it's back to business as usual for the usual smoke-blowers. I don't have much to add to the commentary put out by my friend and colleague "Jesse" on the employment report. You've likely already read his wisdom and insight but, if not, the link is HERE 

I will dress that up with a few facts that can be found if you bother to read the actual BLS report, which is HERE. Briefly: the labor force participation rate dropped to a 26 yr. low. This is the pool of humans that the Govt determines to either be working or not working but actively looking for a job. The reason the unemployment rate dropped to 9% is because the Govt cut 504,000 people out of their labor force calculation. It's an absolute farce because what it tells us is that there's really no hope for many of these people to ever find work in this country. On a not seasonally adjusted basis, the more comprehensive U-6 report showed an unemployment rate of 17.3%. That's a lot closer to the truth but still low according the work done by John Williams on the matter. I guess the most remarkable aspect of today's huge miss vs. expectations is the fact that the number diverged so much from the much-cheered ADP employment report released earlier this week. Both ADP and the BLS use a very similar method of calculating (note: massaging) the data and calculating their cesspoolified number. 

Remember, it's the BLS - leave the "L" out for the truth about what it really is and what the people who work there are full of...

Please read this comment published last night on inflation and gold by James Turk linked HERE. I've said this before and I'll say it now: In 10 years of doing exclusively the precious metals sector and analyzing the truth about our system, I respect James Turk's writing and analysis as much as anyone's out there.








And zero Hedge commenting on the phony numbers:



The BLS: A History Of (Downward) Revisions, Or How The Department Of Truth Goosed Markets With Half A Million Fake Jobs In Two Years

Tyler Durden's picture




Zero Hedge has previously demonstrated the improbable, for lack of a better word, upward bias in revising initial jobless claims applications. Today, we look at an even greater statistical problem at the BLS: that of Non-Farm Payrolls. Courtesy of today's full year revision announced by the BLS, and a granular sort by John Poehling, we have discovered that while revisions added a whopping 55k jobs in the years 2006-2008, NFPs have now been revised to remove 538k jobs in the 2009-2010 period. In other words, based on data revisions, under President Obama, America has suddenly created over half a million jobs less (even if all of them are part time)simply due to statistical adjustments. We won't even go into analyzing just how much worse the S&P would be trading if all those monthly "upside" NFP reports had reflected true and not completely fudged numbers. At an average 22.4K downward monthly revision for every single monthly NFP report in the past two years, we are 100% confident that not even Iosif Shalom Bernanke would be able to offset the market plunge that would ensue each and every of the past 24 months... if fundamentals were ever to be remotely meaningful again, of course.

h/t John Poehling


Your rating: None Average: 4.9 (17 votes)



·         Share/Save



On Thursday night, Dave wrote this on the durable goods report:



Thursday, February 3, 2011

Bernanke Either Is Smoking Some Strong Weed Or Is A Malicious Liar

"History repeats itself, first as tragedy, second as farce" - Karl Marx
I don't think it's any coincidence that today's spike in gold coincided with Bernanke's smoke-blowing session in front of the National Press Club. What is really sad and pathetic is that most of the country that bothers to read/follow the news will wake up tomorrow morning to headlines which proclaim that Bernanke said the economy is improving. BUT, if you look at the real TRUTH behind the economic numbers released lately, you will see that the indices used to measure economic activity have been skewed to the upside primarily by price inflation at the "non-core" level, where "non-core" as defined by the Fed/Govt is "the cost of food and energy." Yes, 'tis indeed a massive farce.

Let's use today's factory orders report as an example, which posted a .2% gain vs. an expected .4% decline. If you read thru the details of the report, which you can do HERE, you will find that the index gains were driven primarily by an increase in the output of non-durable goods and inventory build-up. If you read thru the data table, you'll find that "petroleum and coal products" were nearly 15% of the total value of the index and represented one of the largest % increase in value from Nov to Dec. Given that we know that the price of oil increased during November by almost 13%, it stands to reason that a large percentage of the gain in the factor order index was the price of oil (and coal). Furthermore, the price of steel has been climbing sharply, ergo the increase in the value of the durable goods component of the index. 

Given that new orders for durables were down, and unfilled orders also declined (meaning there was plenty of inventory to fill orders) AND that inventories continued to grow during the month, end user unit demand was flat to down. Thus, the increase in the value of many of the components of the factory order index would have been derived from price increases. Analysts should be quite troubled by the fact that inventories continue building with little evidence of ultimate end-user (consumers, ultimately) demand. We saw more evidence of this dynamic with the auto sales report, which was largely driven by a massive spike in GM sales, but which proved to be largely a function of GM selling cars to dealers, as dealer inventory exploded month over month. There is an excellent accounting of that dynamic HERE.

Anybody read about, or hear/see, any of the above in their local newspaper or nightly news broadcast? How about the geniuses in CNN or CNBC or Fox Biz? Did any of those news sources go over this? 

There's more. The Purchasing Manager's Index reported the other day showed an unexpected increase. But you'll find, if you read thru the details of the report, that one of the largest - by far - components in the increase of this index came from a large increase in prices. Not only that, but that the trend in higher prices has sustained for 19 months. To further bolster the lack of end-user (consumer) real demand, the customer inventory metric is still contracting - and has been for 22 months. What's even more frightening, is that per a NY Post business section (yes, the NY Post, believe it or not, has one of the more credible business editors in medialand) featured an article two days ago in which some anonymous insiders at Walmart were fearing a much larger than expected comparable sales decline this quarter and that they were working toward reducing inventories and reducing new orders. That article is HERE.

Finally, there is the Government's "estimate" of 4th quarter GDP, which was glorified and worshipped by the media. The stock market initially did an end zone dance, but then sold off. Now why would that be? I'll direct everyone's attention to an excerpt from the highly regarded King report, which explains the farce that is the Government GDP calculation: 

"The Q4 GDP estimate is a total fraud. The BEA made the estimate with only two months of data. Though the usual suspects emphasized that the decline in inventory growth subtracted 3.70 percentage points from GDP, they ignored that fooling with the deflator added 1.77% percentage points and goofy trade accounting added 3.44 percentage points to GDP. 

The fraud in the GDP report is evinced by the fact that despite roaring inflation in Q4 government toadies reduced its inflation measure, the GDP Implicit Deflator, to 0.26% in Q4 from 2.03% in Q3!Even the bogus CPI shows 2.6% inflation in Q4!!! And PPI shows 4% inflation!!!! The most infuriating and disgusting scam in the GDP report is that the BEA states inflation at 0.26% to overstate GDP and then it puts import inflation at 21.8% annualized.

The toadies at the US Ministry of Truth report negligible inflation to overstate GDP and also report huge inflation in imports, which allows the deceivers to reduce imports, which increases GDP. The sharp decline in imports grossly conflicts with the biggest surge in consumption in years – unless the trade deficit has suddenly disappeared!!!!

Consumer Metrics Institute: Ironically, the flip-side of the low "deflater" being used for the entire economy is the extremely high 21.8% annualized "deflater" that was used to inflation-adjust the amounts of goods that were imported during the quarter. This huge spike in the imported goods "deflater" (up 31% from a -9.2% dis-inflationary number used in the third quarter) partially explains the dramatic drop in reported imports in the GDP equation (and that consequently boosted the overall GDP growth rate by over 4.9%). Given the recent movement in commodity prices (especially oil) it is hard to quarrel with the 21.8% number per se (even if it brings the 0.3% overall "deflater" into question), but the impact of that "deflater" has certainly added to the noise present in this GDP release, if not to the headline number itself." 

Next time you see a bullish economic report from the Government, remember that they are usually fabricated from estimates, incomplete data and outright data manipulation. Yes, Bernanke is either completely stoned or a calculated liar. And, yes, the farce continues...







Here is another casualty of the economy:



20,000 service members, vets lost homes in 2010 
Foreclosure rate in zip codes near military bases increased 32% 
By Gregg Zoroya – USA Today 
Posted : Thursday Feb 3, 2011 22:24:48 EST

More than 20,000 veterans, active-duty troops and reservists who took out special government-backed mortgages lost their homes last year — the highest number since 2003.

The rate of foreclosure filings in 2010 among 163 zip codes located near military bases rose 32 percent over 2008, according to RealtyTrac, a foreclosure research firm. This compares with a 2010 increase in foreclosures filings nationally of 23 percent over 2008.

The housing crisis has hit military families particularly hard in part because of transfers and the loss of civilian jobs left behind by reservists.

About 12,000 military families applied to the Pentagon’s expanded Homeowners Assistance Program. It makes up most of the difference in price for servicemembers who must transfer and sell their homes for less than they owe, or buys their houses outright.





James Turk has provided us with this update on the real reason we are witnessing rising commodity prices:



The Real Reason for Rising Commodity Prices

February 3, 2011 – An article today in The Wall Street Journal highlights the latest rise in the price of wheat.  Blaming bad weather, it notes that the “global wheat market is caught between freezing winds and a sirocco.”

The WSJ therefore warns that “investors should beware of whiplash as weather normalizes.”  Given that wheat is “up 13% since the start of December”, it is good advice – if weather were to blame. 

The reality is that wheat is being driven higher by more than bad weather.  The price of wheat has been climbing since June, a fact conveniently ignored in the WSJ article, perhaps because it doesn’t square with its premise that bad weather is causing higher wheat prices.  Are we to believe that the market knew seven months ago that weather around the world today would be so bad that it would impact global wheat output?  Or has wheat – which has risen $3.50 per bushel, or 70%, since its June low – been climbing steadily higher over these several months for another reason?  And more to the point, why are all commodity prices rising?

For example, since June copper has risen $1.70 per pound, or 59%.  Is bad weather to blame?

No, of course it isn’t.  Something else is at work here.  Maybe wheat has risen more than copper over this period because bad weather really has had some impact on wheat production.  But obviously, given that commodity prices are rising across the board, we have to look for other factors that are causing this surge in prices.  And we do not need to look too hard.  Just consider the money printing – a/k/a “quantitative easing” – by central banks going on all around the world.  QE is building up tremendous inflationary pressures in the pipeline of goods and services, which for months now has been showing up in the area most sensitive to monetary debasement, namely, commodity prices.

The WSJ article ends by warning that “political storms could provide a tailwind for wheat prices.”  That could be, but right now, the gathering monetary storm is far more important, and there is one easy way to seek shelter – buy physical gold.  Look at the correlation between gold and the CRB Continuing Commodity Index in the following chart.

The above chart makes one point crystal clear.  Rising commodity prices are not short-term phenomena.  Except for a brief deflationary blip in 2008 after the collapse of Lehman Brothers, this CRB Index of 17 essential commodities has been rising steadily all decade – and it is meaningful to note, so too has gold.

So I wouldn’t worry about any shortage of wheat, provided you own physical gold.  Farmers will continue to grow produce, and the market in which money is exchanged for food will continue to function as it has since humankind began to interact in commerce thousands of years ago.  So regardless what happens to the price of wheat, you will continue to buy bread in the future just like you do today, provided you have physical gold to preserve your purchasing power from the ongoing debasement of national currencies being engineered by governments and central banks.




The commodity cotton has been on fire these past several weeks:



Exchange tightens reins on rampaging cotton market

NEW YORK | Thu Feb 3, 2011 5:00pm EST

NEW YORK (Reuters) - The main U.S. cotton exchange acted on Thursday to curb speculation in an overheated cotton market that has seen prices soar to heights unseen since the U.S. Civil War.

Hoping to prevent a repeat of 2008, when a sharp rally followed by a steep plunge roiled the industry, ICE Futures U.S. approved a rule change. The new rule would require investors with more than 300 lots in the spot contract to prove they are adequately hedged going into delivery.

Separately, the U.S. Commodities and Futures Trading Commission, the country's commodities regulator, said it has approved an expansion of the daily trading limits in the cotton market.

Both developments deflated the market, analysts said.

Cotton prices jumped to a record high at $1.8122 per lb in early trade. But as the exchange mulled its move, investors launched a massive liquidation spree. Futures sank the 5 cent limit before ending 4.36 cents down at $1.7186 in volatile dealings.

The exchange announced the rule change after the market closed. It was designed to prevent a repeat of the wild market swing in 2008 that drove two cotton houses out of business, sparked a merger and spurred calls for the government to impose position limits in cotton and other commodity markets.

"It's the type of thing a responsible exchange should do," Mike Stevens, an independent cotton analyst in Louisiana, said in an interview.

Sharon Johnson, senior cotton analyst with commodities brokerage Penson Futures, said ICE is trying to ensure that "we're not going to let a squeeze in the March contract."

"It encouraged some of the selling in the market," said Stevens, adding the psychology of seeing the exchange and then the CFTC "getting involved" weighed on the market even though the government decision would not impact cotton speculation.

In 2010, cotton was the biggest gainer on the Reuters-Jefferies commodity index, rising 90 percent. In 2011, it has risen almost 30 percent before Thursday's tumble.

ICE said in a statement that "cotton market participants who expect to carry positions in excess of the spot month position limit, 300 contracts (or 30,000 480-lb bales), into the notice period would be required to file an exemption ... with the Market Surveillance Department."

"Any exemptions granted would be for a specified contract month only and should not be viewed as relief from the responsibilities all traders have to transact their business in a manner consistent with an orderly market," ICE said.

The rule would begin applying to the March spot month contract during its delivery period, and does not affect back months.

Open interest in the March contract stood at 83,662 lots as of February 2. Total cotton open interest as of that date amounted to 211,283 contracts.

The Financial Times on Thursday reported that ICE was "poised to make an unusual intervention" in cotton markets to cool surging prices which harm mills and merchants.

But cotton traders said the change was not unusual, noting that other agricultural markets on the exchange already have limits on the spot contract before delivery.

"This is about an exemption to the limit before delivery, not position limits," one person said, adding ICE was harmonizing the practice prevailing in other markets.

Investors would need to seek exemptions to the position limit rule by February 14, five business days before the March contract goes into delivery.

Another trader said that, on face value, the rule would not slap limits on investors who had the resources to hedge against an unforeseen turn in the market.

"If anything, it allows investors to exceed the limits on the spot contract going into delivery," this dealer said.




Even nickel is getting into the action:



How Much is a Nickel Worth? More than Five Cents, Says Michael Lewis (VIDEO)

On 'The Colbert Report' (Weeknights, 11:30PM ET on Comedy Central) Stephen Colbert quizzed financial journalist Michael Lewis about what he thinks the next big investment opportunity might be.

"Nickels is what you want to buy, nickels," Lewis explained.

"One of these characters, who made his fortune betting on the collapse of the system has started to buy nickels, " Lewis continued. "The metal content of the nickels is now worth seven cents. If you melted it down, you'd get seven cents."

According to Lewis, this mystery investor was able to get hold of 20 million nickels, which he keeps in a Brinks storage facility.

So hotshot financial types are hoarding nickels, apparently. This can't be a positive sign for the economy.



As I pointed out to you on Thursday, the Long Bond is plummeting in value  (rates rising).  Here is this important article written by Dan Norcini on the James Sinclair commentary on the long bond price drop:



Dear CIGAs,

The big development in today’s market session was the breakdown in the long bond. As you can see from the chart below bonds have been carving out a 5 week old sideways trading pattern bounded by approximately 122 on the topside and 119 on the downside. All sharp sell offs down to the latter level had met with buying that brought them back up to the top of the range where sellers once again surfaced. This impasse continued for more than a month with buyers looking to the Fed’s entrance into the market during its timed purchases of longer dated Treasuries in association with its QE2 program. Sellers were looking at surging commodity prices and other signs of upticks in manufacturing activity and retails sales numbers which suggested that the constant pump priming was producing some impact on the overall sluggish economy.

A thing to bear in mind from a technical aspect is that the longer a market runs in a sideways pattern, the more significant the breakout tends to be when once it occurs, no matter whether that be to the upside or to the downside. In the case of the bonds, the breakdown was to the downside. I should also note that volume on the sharp move lower was very heavy, always a good sign that the move is legitimate.

Follow through early next week will be important to see that this was not a one day wonder and that it is indeed the beginning of a major trending move.

If it is, what is so remarkable is that it is occurring in the face of total planned Treasury purchases of some $600 billion as announced by the Fed back in November. The entire purpose of that program has been to move long term rates lower and help with the dismal housing market and real estate sector which needs the low rates to boost  demand so as to mop up the huge overhang of houses and properties hanging over this sector of the economy. With today’s breakdown of the 5 year on out to the long end, interest rates are headed in a direction completely opposite than what the Fed has been intending!




Here is a chart on the long bond trading.  This is a 3 month chart and you can see the long bond broke into the 117 column.  Once it breaks the 116 level JPMorgan with its huge credit default swaps will suffer huge losses.

(The 10 year bond also fell 7/8 of a point to a yield of 3.59% far above the critical high point of 3.5%.)



INO Markets

117.87500 -1.21875 (-1.03%)

2011-02-04 17:05:04, 10 MIN DELAY

T-BONDS Mar 2011 (E) (CBOT:ZB.H11.E)





I think that about does it for today.  I hope you have a grand weekend.

all the best


Search This Blog