Steve Quayle News Alerts

May 28, 2003

They naturally allied with another powerful class, the bankers and financiers, in promoting party differences in the lower house as a way of distracting people from the real issues. This quotation from the USA Banker's Magazine of August 25, 1924, is proof of this:

"Capital must protect itself in every possible manner... When, through a process of law, the common people lose their homes, they will become more docile and more easily governed through the influence of the strong arm of government, applied by a central power of wealth under control of leading financiers.

This truth is well known among our principal men now engaged in forming an imperialism of capital to govern the world. By dividing the voters through the political party system, we can get them to expend their energies in fighting over questions of no importance. Thus, by discreet action we can secure for ourselves what has been so well planned and so successfully accomplished."

While closing lower, gold’s performance today was DRAMATIC, as it rallied $7.10 off its Comex session lows. Rarely does gold ever come back like that after such a battering. I cannot recall it acting in such a manner more than a couple of times over the past four or five years.

As mentioned in the last Midas, gold was trashed for $2.80 in the Access market after yesterday’s close. The Gold Cartel took bullion down on Tuesday in a desperate attempt to defend the $370 area and to protect their written call positions. The Access move was to set up today’s bashing and go after those speculators who took futures positions in lieu of their in the money, expired 365 and 360 calls. Investors went home with $2.50 to $7.50 profits if they took a futures contract via the calls. Those profits were wiped out early in Comex trading as spot gold was trounced all the way down to $358.10. Many of those new specs sold in a panic.

There was one other reason The Gold Cartel made their move today. Friday is first notice day and specs must roll over the June longs, take delivery, or exit the trade. A crashing market is more likely to create selling, instead of rolling the position over. The cabal needs that kind of selling to take gold down and, in some cases, to cover some of their shorts.

Volume today was enormous at 110,000 contracts. My floor sources characterized the trading as "out of control." Much of the buying came from gold market traders (players) who missed the recent run-up and wanted in. This area must hold, but these same floor sources liked the close very much.

Today’s move firmed up the gold chart from a technical perspective:
http://futures.tradingcharts.com/chart/GD/63
Gold bulls looking for a correction, got it. The setback took out a bunch of weak longs and black box traders, leaving the market in much stronger condition to move much higher from here. The comeback off the lows is a HUGE psychological boon to gold buyers of all types.

There should have been quite a flush out of spec longs on the dip. As of Tuesday, the Comex open interest stood at 206,318. That number should contract by a good deal tomorrow.

The physical market is just too strong (see JB) and the other gold fundamentals are just too bullish to keep gold down for long. As I keep mentioning, those fundamentals are a "10+." They don’t get any better as an aggregate. $370 is a real battle, but it is one The Gold Cartel is going to lose. They are going down for the count.

As mentioned in the past two Midas commentaries, I thought silver was a steal of a buy between $4.55 to $4.57. So far so good. Silver tanked to $4.54, a new low for the move, and then reversed to close higher.

A major silver short, one who has been running this market, was a stealth buyer all morning, doing what he could to accumulate silver and not let other traders know he was the one doing the buying. Silver should head much higher from here and finally might take that serious run at $5 I keep looking for.

The silver open interest is 82,547, falling a healthy 2497 contracts yesterday. With major short covering hitting the market today, it should have fallen even further, but ought to move higher as silver moves back up.

The dollar corrected a bit, closing at 93.58, up .77, and the euro sank .86 to 117.64.

The John Brimelow Report

Wednesday May 28, 2003

Indian ex-duty premiums: AM $6.85, PM $7.67, with world gold at $366.20 and $362.50. Far above legal import point and, of course, sharply higher than yesterday when world gold was above $370. Reuters this morning carries the usual story about Indian dealers moaning about how poor trade is: these are always somewhat suspect, but in this case, pertaining as it must to the conditions of the US Long Weekend – e.g. gold over $370 – it is obsolete. HSBC today is far more alert:

"physical demand from the Indian subcontinent has increased sharply in response to the recent pull back in prices…this should…eventually to pave the way for another move higher."

TOCOM was of course surprised and discouraged by NY’s direction change:

"Tokyo gold futures turned down following the Tuesday COMEX gold drop, which was due to fund selling tied to the bullish stock market."

In Nihon Unicom’s words. On volume equal to 32,642 Comex lots (down 22% from yesterday) the active contract fell 12 yen. With no leadership from the yen which was static (+ 13 bps.) open interest was little changed (up 109 Comex equivalent) and $US gold slipped another $1.10 from the NY close. (NY yesterday traded an enormous 120,909 contracts, of which some 21,000 arose from switches: open interest fell 1,602 lots.)

Once it became apparent yesterday morning that gold’s surge (to what, except for a brief 24 hour period in early February, was in effect the high of the year), was to be stopped:

"Gold had nearly traded up the $375 level in European trade yesterday but when one US investment bank sold gold direct this capped the rally."

as UBS Warburg puts it, the outbreak of $US/Stock Market euphoria on the NY opening opened the way for one of the most violent bear raids the gold market has seen in weeks.

Stops were triggered and weak longs routed, amongst them JP Morgan’s Technical Research:

"Long Gold from 368 stopped at 365…We had expected the break of 373 to open the next leg of the bull run towards 380."

Considering the modest and technically insignificant nature of the dollar rally (to say nothing of the fundamentals), and the magnitude of the Indian premiums the market action seems somewhat jejune. Better to spend time considering a noted bullion dealer’s perceptive assessment of the Newmont action:

"The end of the gold business as we know it… Few credit departments at these counterparties [or any others, in future] will accept the Newmont alternative – transfer 40% of the hedges to Newmont, write off the other 60%, and essentially take a bet that a lower gold price will make these 40% less underwater [and that Newmont would not pull the ‘offer-they-can’t-refuse’ stunt again]. Ergo, hedging is dead. …an exaggeration, but not much. Newmont have just raised transaction costs for all gold borrowers – credit departments of lending banks will demand bigger spreads to offset the risk set by the Newmont precedent that the miner could simply walk away. At the very least miners’ business will be subject to clinical credit dissection, leaving maybe only the very large, highly rated miners in the game…Sand in the wheels. With the risk that the whole machine stops. Scorched earth. Raising the perception that hedge closures will be accelerated; with, soon, banks applying an axe, as well as miners under the thumb/yolk of born-again bullish shareholders."

Or, alternatively, the implications of the Enron lawsuit against its derivatives counterparties. Perhaps the litigation possibilities of claiming gold miner’s former managements were bushwhacked by more intelligent Investment Bankers will become a key hidden asset for many of the prominent participants in the ’84-’99 hedging orgy!

JB

http://www.lemetropolecafe.com/