Golden Minerals Company

Barrick Bites the Bullet

The fight was on the moment that trading began in the Far East on Tuesday morning. Volume was ten times normal for that time of day.... and starting minutes after 3:00 p.m. in Hong Kong's afternoon [2:00 a.m. in New York], the gold price burst through $1,000... and was about $1,005 when I hit the sack. Of course I was hopeful that the morning would bring a clear break-out to the upside, and I had lots of happy thoughts about that as I drifted off.

But, alas, it was not to be. The high price of the day was around 9:00 a.m. in New York trading... and at 11:30 the rally got sold by one of the "usual suspects." Gold made several valiant attempts to get back over $1,000... but each attempt was crushed. Volume was huge... 150,000+ contracts.

Silver's path was similar, except its high price of the day was set shortly after the London open. From there, it 'drifted' lower until it ran into the same brick wall as gold... at precisely the same moment as gold... 11:30 a.m. to the second. Do you detect a pattern to all of this, dear reader, or is it just me?

Initially the precipitous fall of the dollar had an immediate effect on gold [and silver] prices in Hong Kong, but that effect was obviously not allowed to last. However, I can absolutely guarantee, dear reader, that if the U.S. dollar had risen by that amount, gold would have been down thirty bucks in a New York minute.

As expected, precious metals shares took off right at the open... but began to fall in lock-step with gold and silver when their respective prices plummeted. Not that I'm overly suspicious or anything, but for the most part, it was the large cap shares that got it in the neck. A lot of the little juniors had huge increases yesterday... and managed to hold most of their gains. This is one of the reasons why I am so big on Casey Research's flagship publication, The International Speculator. True, its price seems high, but like I said before... it pays in the end... as it did several times over yesterday. If you wish to investigate further, the link to the I.S. publication is here. I urge you to give serious consideration to subscribing, as that's where all the little up-and-coming junior companies are covered... and Louis James & Co. really know their stuff.

And now for the open interest numbers from Friday. As you can imagine, they were awful. But, as bad as they are, they will pale in comparison to the o.i. numbers for Tuesday when they come out later today. Gold open interest rose another monstrous 13,212 contracts to 438,504... on big volume [for a Friday before a long weekend] of 124,410 contracts. Silver o.i. was only up a modest 1,024 contracts to 113,418... on volume of 33,052 contracts... which is pretty big for silver.

As you can see, the bullion banks are throwing everything at this rally that they have... no matter how big their net short position gets... and right now, based on yesterday's volume, it's knocking on the door of 28 million ounces... a new record high! That's about 35% of this year's gold mine production. The silver net short position is big too, but still has a long way to go to get to any sort of record.

Yesterday's open interest numbers should hopefully be in this Friday's Commitment of Traders report... if everything gets reported in a 'timely manner' that is. If it does, we should see that record high I mentioned in the last paragraph.

Could this record short position get larger? Sure... why not. "In for a penny, in for a pound" is an old English expression going back centuries. And there's also a chance that the bullion banks could get overrun. We are definitely in uncharted waters here. But if we do get a big sell-off to the down-side, there should be no doubt in anyone's mind as to how, why... or by whom it was perpetrated.

Yesterday's Comex delivery report showed that eight gold and 96 silver contracts were delivered. There were no changes at either GLD, SLV, the U.S. Mint... or at the Comex-approved silver warehouses yesterday. However, over in Switzerland, there were more inflows into the Zürcher Kantonalbank ETFs. Their gold ETF added a smallish 4,990 ounces of gold, but their silver ETF added another substantial amount, this time it was 398,347 ounces. Once again I thank Carl Loeb for those numbers.

The usual New York commentator had the following yesterday... "Several stories have appeared of dire forecasts for Indian demand with world gold at this level. The truth is, with US$ gold and the rupee both unpredictable, not much useful can be said. The key point is that domestic Indian prices have not fallen far below world gold (unlike the situation in Q1) and therefore India can be counted upon to buy on any pullback. This will be a serious problem for the Bears."

"The European Central Bank weekly statement of condition reports that "gold and gold receivables" fell by €31 million, (1.49 tonnes) from the previous week, attributed to sales by two captive Central Banks. This is a lot more than the 0.09 tonnes last week... and it is some time since two CBs sold, so it is tempting to see this as significant. But it is, after all, still negligible compared to the average of 7.7 tonnes needed to evenly achieve the new lower 400 tonne annual ceiling – and there is nothing to stop much larger sales in any given week. Perhaps the breakout above $960 touched off more options."

"Friday’s effort to sell gold down on Comex was of course outflanked by the weakening dollar and defeated: Dec gold finished down only $1. But the effort was very large: open interest jumped another 13,312 lots (41.09 tonnes or 3.1% - if gold had gone up proportionately it would have risen $30.90!). Open interest has not been higher since July 30th last year [My emphasis - Ed]."

"Today gold jumped some $10 in the early European day, but to the surprise of no experienced observer, was met with a blizzard of selling on Comex. Estimated volume was a huge 87,703 lots by 9AM. This despite what looks like a crucial breakdown on the $US Index chart. Quite closely tracked by Euro gold, Dec gold was battered down from an up $13 high to settle up only $3.10, with spot below the headline-making $1,000 level. Final estimated volume is not to hand but looks like being about 160,000 lots."

"Clearly... and quite predictably... $1,000 gold has enemies. But the physical market situation is quite different to Q1."

The big gold story came out in the early evening yesterday. It was a Reuters piece bearing the headline "Barrick to sell $3 billion in stock to buy back hedges". So, the Darth Vader of gold companies finally hit the panic button... urged along, no doubt, by their bullion bank, JPMorgan. I can't say enough bad things about this particular gold company. Some of the people who are [or who have been] on their board of directors would make your skin crawl. But if you, dear reader, decide to do a Google search of the history of Barrick Gold... well... it's more than ugly. Barrick led the gold industry into the forward selling arena way back when, and cost their shareholders [and their entire industry] unknown billions... and they're still on the hook for billions if you read the second last paragraph closely. However, not to be overlooked in all this, is the fact that Barrick is finally "getting of Dodge"... and if they're running for exits... that should speak volumes about the future price of gold and silver. The link to this must read story is here.

In late-evening commentary last night, the usual N.Y. commentator had this to say about the Barrick news... "Before considering the implications of this, those with long enough history watching gold [Your humble scribe being one of them. - Ed] will want to lift a metaphorical glass to the gentlemen of the gold derivatives industry, who hornswoggled the allegedly sagacious managers of the industry into such catastrophically disastrous transactions. They are [I'm reliably informed] in the main, lucratively retired in congenial locations. Those of us opposed to these transactions at the time who are not dead - like Jim Blanchard or Brett Kebble or International Investor's Harry Bingham - are, in general, not so well positioned. Clearly there is moral here."

"The immediate concern, of course, is that the buying of the past couple of weeks was mainly this transaction. If so, it was very indiscreet, but the possibility has to be considered. In a sense, this would actually alleviate concern about the spec long being excessive, since the Barrick "short" will offset it. But those with deep enough scars will remember a similar buy-back marked the top in early 1994."

"On Monday, The Gartman Letter made an important statement: Clearly... or at least clear to us... the governments of the world would prefer seeing gold trade below $1,000, for they know the psychological importance of that level, and although they cannot openly intervene in the market to keep the price below there, we've no doubt but that they shall try to use what "weaponry" they can to try to keep it "south" of that level. Eventually, however, they shall fail in doing so, for the world in general is being dissuaded from holding any and all currencies..."

"TGL then bought sterling/gold... and today it remarked... Governments everywhere are going to have a difficult time explaining gold's strength today." In effect, this very influential publication is agreeing that the authorities have an interest in managing the gold price. A decade ago, the concept was generally scorned. Many of gold's friends find TGL annoying [This concept is not difficult to grasp if one has heard him speak in public, because he's such a gentleman and all-around classy guy in private... it's hard for me to believe it's the same person talking when he gets in front of a microphone or a TV camera. - Ed] But the fact is that it maintained an interest in gold when most banished it from the radar screen. Furthermore, it discusses the GATA surreptitious intervention theory--albeit with ridicule--when no one else would mention it. A publication like this is intensely political. It cannot say what its audience will viscerally dismiss as ridiculous. The fact that TGL now feels able to say "we've no doubt but that they shall try to use what 'weaponry' they can to try to keep it 'south' of $1,000" means that the times have indeed changed."

Another gold story yesterday, this one from Reuters was posted over at mineweb.com "South Africa's gold output fell 9.3% year-on-year in the second quarter of 2009, despite being measured against lower gold production in the same period last year when output fell due to a power shortage." The story is linked here.

In other news, I see that another five banks were taken over by the FDIC on Friday. I'm waiting for the moment when they start taking them over 10 or 20 every week, and that day is coming. Then there was a Bloomberg story on Saturday that stated the following... "Saudi Arabia’s central bank governor, said the bank won’t buy up debts from two family businesses that defaulted after borrowing more than $15 billion. Units of the two groups have borrowed at least $15.7 billion from more than 80 regional and international banks, including Paris-based BNP Paribas SA, New York-based Citigroup Inc. and Arab Bank Plc in Amman, Jordan, according to documents provided by lenders. About $5 billion of that is owed to Saudi banks, Standard Chartered Plc said in an Aug. 26 report." More 'wealth' going to money heaven!

Well, with the long weekend just over, my in-box is full of interesting stories. I will cherry-pick them... and then pray I have room for the rest of them as the week rolls along. The first is a report from The Telegraph in London. The headline reads "UN wants new global currency to replace dollar". It sounds like another step on the road to one world government to me... but getting everyone to agree on a single currency?... good luck to them! The link is here.

Russia, for one, will be a hard sell on this issue, as they are deeply suspicious of the USA, The World Bank and the IMF... and for excellent reasons, I might add. In a report from The Moscow Times last Friday come this headline "Putin Tells [Finance Minister] Kudrin - No Loan From IMF". Putin also instructed Kudrin not to participate in financing any SDRs, as the country already has other financial commitments. Instead, he said, Russia must use its influence within the fund [IMF] to encourage more lending to the Commonwealth of Independent States. Both Putin and Medvedev have both have been highly critical of any reserve currency that is not partially [or completely] backed by gold. I thank Doug Beiers for the story, and the link is here.

China is another country that's not jumping up and down about a new global currency, because it just announced that they "will issue sovereign bonds denominated in its own currency to offshore investors for the first time this month – a crucial step towards making the renminbi a global currency." I thank the Craig McCarty for this Financial Times story. The headline reads "China to issue renminbi bonds to offshore investors" and the link is here.

The next item is from Ambrose Evans-Pritchard at The Telegraph in London. "China has issued what amounts to the “Beijing Put” on gold. You can make a lot of money, but you really can’t lose." The title to this story is "China, Bernanke, and the price of gold". I thank Craig McCarty for sending along this must read story and the link is here.

The next gold-related story is by Peter Brimelow over at marketwatch.com. The headline reads "Gold Bugs Brace, as metal tests $1,000 again"... "All the usual elements are in place, including potential disappointment." There are lots of goodies in this short piece, which I consider to be worth your while. The link is here.

And lastly is an interview posted at q1publishing.com with John Embry, chief investment strategist, at Sprott Asset Management in Toronto. It's in two parts... both attached under the same link. The headline reads... "Gold Outlook: Explosion in the Price of Gold Imminent" and the link is here.

Government employees move up the ladder through educational credentials rather than merit. People are given jobs and promotions based on seniority, race and gender rather than ability or talent. Such a system often overlooks the deserving and rewards the incompetent. There is no payoff for achievement. - James Cook

With the bullion banks' net short position in gold now pushing 28 million ounces, the Category 5 hurricane flags are flying high. As I mentioned before, we are in completely uncharted territory. In the past, all similar situations have ended up exactly the same way, with the bullion banks putting their head's together and making sure that all the mice are in the trap. Then they reach for the lever, and at the appointed time... down we go. The 50-day moving averages in gold and silver are $946.02 and $14.07 respectively. Below is the 3-year silver chart. Please note the RSI is in hugely overbought territory and, with only one exception [January '08], a correction of some size and duration occurred until the oversold condition went away. Will it happen now? Don't know. Could the bullion banks get overrun...buried with a full short position on? Maybe, but if they do, it will be for the first time... so I don't like the odds.

It's a really tough call. The bullish news for gold and silver is coming thick and fast these days, and you almost need a program to keep up. Barrick's surprise announcement is just the latest in a flurry of positive news for precious metals in the last month.

So... even though I have my fingers crossed and hoping for the best... I'm sort of expecting the worst.

See you on Thursday.