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In case you have not been paying attention, the chart below clearly shows how precious metals have been ‘taking it on the chin’ for the past couple of weeks: But What’s Really Going On? With many in the main stream financial press chiming in with views that precious metals and commodities are “bubbles waiting to burst” – it seemed appropriate to examine some of the major undercurrents affecting price movements in precious metals, and gold in particular. If we are to believe the axiom that actions speak louder than words, we might choose to take note of Goldman Sachs’ growing short position in gold futures on the Tokyo Commodities Exchange [TOCOM] – where we would discover that Goldman is ‘net short’ in excess of 46 thousand contracts, with their entire short position split between the Feb. 07 and April 07 contract. The short position alluded to [above] represents a reduction from well in excess of 50 thousand net short a few weeks ago. Put simply, Goldman has been covering shorts [buying] on TOCOM while the price has been dropping. After a quick review of Bill Murphy's May 17/06 daily MIDAS commentary we see this: Goldman Sachs has published an essay on Indian gold demand, which has received notable simultaneous publicity via channels such as Reuters and the Gartman Letter. It advances the familiar argument that rising sophistication and greater financial service availability will dull the Indian public’s appetite for bullion. This argument has been propounded for a number of years by the leading gold bear theorist, Andy Smith formerly of Mitsui and UBS, with no particular validation. Indeed recently there has been anecdotal evidence of a move by the financial elite of India to gold bars, motivated perhaps by skepticism as to the durability of currently high stock market and real estate values in the country. The passage above reveals that Goldman is actively promoting research that suggests the price of gold will decline. If they really believed this, why would they be covering shorts? Then on May 19, in Adrian Douglas’ contribution to Bill Murphy’s daily MIDAS commentary we learned this: In the May 18 TOCOM session Goldman Sachs appeared to throw in the towel in trying to break down the price of gold (another bluff perhaps considering their performance on the COMEX today). They covered 3,691 shorts. They achieved this by covering 720 contracts in DEC 06, 4,533 contracts in FEB 07 and going short 1562 contracts in APR 07. Goldman Sachs is LONG in every month up until DEC 06 to the tune of 3,338 contracts. They have NO shorts in any month before DEC 06. They have only 380 shorts remaining in DEC 06. They are short 18,481 contracts in FEB 07 and short 30,558 contracts in APR 07. They have ZERO offsetting longs in 2007. ZIP, NADA! I find this a rather peculiar portfolio of gold futures for a company that made a press release today predicting a gold price of $800/oz by the end of 2007. So far on the TOCOM for 2007 they do not have a futures contract for one single ounce of gold on the long side! They are short 1,569,248 ounces of gold! [RK emphasis] Here, Goldman is publicly calling for the price of gold to be “much higher” in 2007 – but we learn that they are short more than 1.5 million ounces of gold for 2007? Conflicted, Confused or Con Game? Then today, UBS revealed this: Russia
leading global 'stealth demand' for gold The world's big money brigade is snapping up gold bullion at eight times the rate originally thought, according to a report by UBS, the world's biggest gold trader. The huge sums entering precious metals below the radar are likely to help to put a floor under the gold price after the dramatic fall of $112 an ounce in late May - the sharpest correction since the bull market began five years ago…………. I would suggest – given the highly political nature of anything associated with gold – that flows of new money into this sector that are eight times the rate originally thought – are and most certainly never were below the radar of either UBS or Goldman Sachs. What I do find utterly reprehensible – is that this information has been KEPT OUT of the mainstream financial press. I’ve got a sneaking suspicion that much of this is about to change; if so, BUCKLE UP! If you find any of this confusing, rest assured, you are not alone. The very nature of the conflicted empirical evidence outlined above is the essence of the gold bug’s [GATA] claims that the price of gold is surreptitiously rigged or managed. Today’s Market Overseas equity markets began the week on a sour note with Japan’s Nikkei Index losing 121 points to close at 15,668. Meanwhile, North American markets also fared poorly with the DOW dropping 199.15 to 11,048.72, the NASDAQ losing 49.80 to 2,169.60 and the S & P shedding 22.90 to close at 1,265.30. NYMEX crude oil futures added .27 to close at 72.60 per barrel. On foreign exchange markets the U.S. Dollar Index edged up .08 ending the day at 84.08. Interest rates edged higher with the benchmark 2-year bond up .06 to 4.98%, the 5-year up .05 to 4.95% and the 10-year up .03 to 5.02%. Precious metals ended the day mixed with COMEX gold futures adding 6.40 to close at 643.90 per ounce while COMEX silver gained .20 per ounce to close at 12.40. Precious metals share prices performed poorly with the XAU losing 3.81 to 139.83 while the HUI dropped 9.55 to close at 328.08. Wishing you all a pleasant evening and prosperous tomorrow! Rob Kirby |
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