Gold plowed through resistance at 1250 Friday and pushed the door to 1300 open further. Recall that on May 2 I suggested a break of the Ascending Triangle consolidation in Gold at 1178 projected a move towards 1300. Gold subsequently broke through the top of the triangle at 1178, and retested the breakout over the next three weeks. Caution, however, is warranted here.
The CRIMEX beasts are not going to simply let Gold runaway from them...though the potential for just that to occur may be looming. The CRIMEX is facing the daunting task of meeting delivery on all-time record demand this month of June for 2,283,000 ounces. The CRIMEX has ONLY 3,255,000 ounces registered to use to meet delivery demands. 70% of The CRIMEX registered warehouse stocks face delivery demand as of the 30th of June.
Thursday of this week past, the CRIMEX goons threw everything but the kitchen sink at the Gold market in an effort to halt it's rise. Friday, they lost the sink.
On June 6th, Silver broke higher from an intra-day low of 17.18, and has been leading Gold higher ever since. Silver has a strong tendency to make powerful moves ahead of major peaks in the price of Gold. With several technical projections for this current leg up in Gold topping out between 1287 and 1304 we need to keep a sharp eye on the price of Silver and the Gold/Silver Ratio [GSR] in the very near-term.
A close above 19.50 in Silver will most likely force a very quick move up over 20. Resistance in the GSR sits near 62. A close above 19.50 in Silver will most likely coincide with a powerful move higher in Gold, pushing it nearer to 1300. A 1304 top in Gold with a 62 GSR equals a Silver price of 21.03. A 1287 top in this Gold leg with a 62 GSR would equal a Silver price of 20.75.
It is noteworthy also that Jim Sinclair's next "Gold Angel" sits at 1278. This is significant because the previous Gold Angel was parked at 1224, and the previous leg up in Gold topped out at 1226. A Gold price of 1278 with a GSR of 62 would equal a Silver price of 20.61.
July is a delivery month for Silver. With 46 MILLION ounces of Silver still standing for delivery from March and May, July delivery demands at the COMEX might literally break the bank. At present there is ONLY 52 MILLION ounces of Silver registered for delivery in the CRIMEX Silver warehouse. The potential for an unrivalled rise in the price of Silver as we enter July is in place. Physical Silver may literally become impossible to find at any price should delivery demands break the CRIMEX.
The Precious Metals are seasonally weak in the Summer from late June into August. Seasonality factors should be respected, but a number of fundamental factors, coupled with CRIMEX warehouse shortages, may be too much for "seasonality" to depress Precious Metal prices in 2010. Consider these fundamental factors together, and it may be difficult to project any near-term top in Gold at present...
Demand for imports helps widen trade deficit- AP
New jobless claims up sharply as layoffs persist- AP
Election-year deficit fears stall Obama stimulus plan Washington Post
Obama urges G-20 to continue stimulus Philadelphia Inquirer
Peg is dead as China vows yuan flexibility Reuters
Congress ready to tighten the screw on Iran - Financial Times
Recent headlines that all spell uncertainty, and Gold loves uncertainty. China's announcement over the weekend concerning "Yuan flexibility" is noteworthy, but should not be considered an "immediate' catalyst to the Gold price. It does lend substantial uncertainty to the Dollar going forward however as a stronger Yuan will most likely mean a weaker Dollar.
Dave Kranzler of The Golden Truth has some excellent commentary this past week/weekend regarding the "seasonality" of the Precious Metals:
Gold set a new all-time weekly high close against the dollar this past week. The was preceeded by all-time highs in gold in the Swiss franc, British pound and euro. James Turk wrote commentary with some excellent charts to show how the price of gold is beginning to accelerate against global fiat currencies: Gold Starts To Gallop. Mr. Turk sent me the following comment in response to my Friday posting on silver:
A short squeeze is inevitable I believe, and this is a good time to expect one to happen. There seems to be an unusually large focus at present on the precious metal seasonals - summer is normally a weak period for the precious metals. It doesn't always happen that way of course (like in 1982). So a short squeeze could catch a lot of normal longs off-guard if they are waiting to buy the dip that never comes.
I have expressed to colleagues for a while now that I thought there was chance that gold/silver might, contrary to the typical seasonal pattern, stage a surprise move higher in June/July. Sensing that the physical demand in the market is starting to overwhelm the paper selling (just ask Russia), I have been thinking that the market would be set up to take advantage of a price correction that doesn't happen and scramble to re-establish long positions. We'll see how the next 6 weeks play out, but I always feel good about my views when they correlate independently with Mr. Turk's.
Silver: Is A Physical Squeeze Starting To Bubble Up?
The Comex had two large silver withdrawals this week. Yesterday's warehouse stock report showed 1.2mm ounces were removed, 900k of it from the "eligible" inventory, which is the investor inventory being "safekept" at Comex depositories but not available to be delivered. 480k of that 900k was removed from Scotia. With all the discussion and unrefuted (by Scotia) accusations about Scotia's depository safekeeping methodologies, it wouldn't surprise me to see even more gold and silver going forward being taken out of Scotia's customer inventory.
But here's an even more glaring issue: as of last Friday, the net commercial short position in silver, as per the COT report, was 55,329 contracts. At 5,000 ozs/contract, that's 276,645,000 ounces of silver sold short by the big bullion banks (Mostly JP Morgan, HSBC and BNS - and mostly JPM at that). What's the problem? The total silver inventory being reported by the Comex is 118 million ounces. But of that, 66 million is customer inventory not available for delivery, leaving 52 million ounces of silver that can be delivered vs. 276 million of short paper silver.
Let's break it down to just July silver. The July silver open interest is 47,921, which means that there is 239 million ounces of silver that has been shorted for July vs. the 52 million available for delivery. See the problem? Historically JPM could count on the longs to sell their position before first notice of delivery day or tender for cash. If the Comex silver longs start correlating with the trend in the actual physical market, the Comex will default on silver deliveries...
That the physical market in gold and silver is getting tight is not new news. But the above withdrawals from the Comex customer silver inventories this week, in the context of the anectdotal events as described above, can only lead one to believe that an enormous amount of pressure is being created by the trend of big investors demanding physical delivery into private depositories that are trustworthy and not connected to the bullion banks, who are likely leasing out some portion of the bullion in their depositories.
One more interesting development has to do with scrap supplies of gold. In the past, when gold breaks out to new highs, European bullion dealers report the emergence of a large supplies of scrap selling that hits the market. Last January (2009) the flow of scrap into the market was credited with causing the subsequent pullback in price. So far in this latest move, very little scrap supply is being reported.
Gold reclaims its currency status as the global system unravels
By Ambrose Evans-Pritchard
And are we any safer now that the EU has failed to restore full confidence with its €750bn (£505bn) "shock and awe" shield, that is to say after throwing everything it can credibly muster under the political constraints of monetary union? This is the deep angst that lies behind last week's surge in gold to an all-time high of $1,258 an ounce.
The World Gold Council said on Friday that the central banks of Russia, the Philippines, Kazakhstan and Venezuela have been buying gold, and Saudi Arabia’s monetary authority has "restated" its reserves upwards from 143m to 323m tonnes. If there is any theme to the bullion rush, it is fear that the global currency system is unravelling. Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency.
It is certainly not inflation as such that is worrying big investors, though inflation may be the default response before this is all over. Core CPI in the US has fallen to the lowest level since the mid-1960s. Unlike the blow-off gold spike of the Nixon-Carter era, this rally has echoes of the 1930s. It is a harbinger of deflation stress.
Capital Economics calculates that the M3 money supply in the US has been contracting over the past three months at an annual rate of 7.6pc. The yield on two-year Treasury notes is 0.71pc. This is an economy in the grip of debt destruction.
U.S. Debt and the Greece Analogy
by Alan Greenspan
Don't be fooled by today's low interest rates. The government could very quickly discover the limits of its borrowing capacity.
An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon. Perceptions of a large U.S. borrowing capacity are misleading.
Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.
The roots of the apparent debt market calm are clear enough. The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy. The very large contraction of private financing demand freed private saving to finance the explosion of federal debt. Although our financial institutions have recovered perceptibly and returned to a degree of solvency, banks, pending a significant increase in capital, remain reluctant to lend.
Beneath the calm, there are market signals that do not bode well for the future. For generations there had been a large buffer between the borrowing capacity of the U.S. government and the level of its debt to the public. But in the aftermath of the Lehman Brothers collapse, that gap began to narrow rapidly. Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008. How much borrowing leeway at current interest rates remains for U.S. Treasury financing is highly uncertain.
The U.S. government can create dollars at will to meet any obligation, and it will doubtless continue to do so. U.S. Treasurys are thus free of credit risk. But they are not free of interest rate risk. If Treasury net debt issuance were to double overnight, for example, newly issued Treasury securities would continue free of credit risk, but the Treasury would have to pay much higher interest rates to market its newly issued securities.
Money As Debt[must view video]
This presentation explores how money is created and issued. Money used to be backed by Gold and Silver but today's money is backed by debt - your promise to pay back a loan and the government's promise to back up the currency.
The shocking TRUTH revealed...if you paid off ALL debt, there would be NO money. All money is directly related to the creation of debt.