gold/silver overnight action

  1. 678 Posts.
    From Le Metropole Cafe

    March 25 - Gold $416.90 down 20 cents - Silver $7.58 down 3 cents

    Morgan Stanley Fails To Break Gold And Silver Markets

    Assiduus usus uni rei deditus et ingenium et artem saepe vincit (Constant practice devoted to one subject often outdoes both intelligence and skill)...Marcus Tullius Cicero

    GO GATA!!!

    Gold came in steady, while silver was bombed early by HSBC, a major silver short, and to a less extent by silver price manager, Morgan Stanley. HSBC offered 400 lots on the opening and all they could get filled was 30 lots. That meant there was an air hole and the silver price was bombed down 16 cents on the opening. Clearly the trade was doing all it could to take silver below $7.50 so the April calls would expire worthless.

    After the a steady opening, gold tanked almost $2 in sympathy with the silver sell-off, but came back as the funds took on the trade who were protecting their shorts and option exposure. It wasn’t long before gold went positive. The rest of the day was a see-saw affair. Late, Morgan Stanley went ballistic offering gold and silver, trying to break both. They were met by resolute buying. Their effort to break silver and "give it a lousy close" failed miserably.

    The gold open interest gained another 2054 contracts on the break yesterday to 283,893. Once again we see evidence of the investment world willing to taking on The Gold Cartel. The silver open interest fell 544 contracts to 119,435 with the March dropping 23 contracts to 248.

    There were no deliveries. MIDAS is still waiting for a short to delivery me 5,000 ounces of silver. Two trading days left in the March contract.

    Considering the effort The Gold Cartel is making to contain gold, its price performance after the recent run-up is quite admirable. The bad guys have their hands full as a swarm of new buyers is willing to take them on. As far as silver goes, it is normal once a market breaks through key resistance like silver did at $7.50 to go back and test that area. The testing can last days or weeks. Once the test is passed, silver is likely to blow through $8 very quickly.
    TOCOM had to deal with a firmer yen as well as a softer $US gold price this morning. Mitsui-HK says:

    "Gold eased post-Comex …Low gold price attracted a flurry of bargain buying as soon as Asian market started. However the rally to 416.50 was short-lived as traders began to batter bids down to 415.75. 415 proved to be good support and gold bounced a dollar near the close.
    (JB emphasis)

    A bit of this ‘bargain buying’ was apparently Japanese. Volume rose 17% to equal 21,838 Comex lots and open interest was up the equivalent of 920 lots. The active contract went out down 19 yen and world gold was $1.15 below the NY close at the end. (Yesterday NY traded a huge 108,379 contracts of which 19,618 were switches. Open interest rose 2,054 lots – making a 20,000 rise for the week to Wednesday, almost exactly the entire increase last week.)

    A couple of commentaries take note of gold’s better performance of late in non- $US terms, for instance N M Rothschild:

    "It is interesting to note that the last time the euro was at this level, gold was trading at $396, indicating the recent rally in the gold price has been to the increase of geopolitical concerns and the attachment of a safe-haven premium to gold,"

    What is attracting a resounding silence is the huge volumes trading on Comex this week. With spot gold moving into the $415-20 zone quite promptly after Monday’s Comex opening, almost 400,000 contracts have traded by the 12 Noon estimate this morning, compared to 285,000 all last week. Even if one adjusts for 45,000 switches this is very heavy, especially for so little price progress.

    Clearly it has not gone unnoticed. Standard London, notes of yesterday:

    "good physical selling capped the market and the price fell back to $417.60 by the morning fixing in London …The price has fallen back below $416 in Asia this morning…. On the charts while the third successive close above $416 was positive, the mood of the market is mixed and technical traders will be wary of a dip back to support pegged at $410"

    Refco Research was sufficiently intimidated to close out its (profitable) long gold trade this morning, and of course the gold shares have been fearing the capping of gold all week.

    In fact, gold shares have usually exhibited vertigo whenever the possibility of gold making a new multi-year high has appeared (and gold is not so far from that achievement at present). September, while bullion was considering the $380s, is a memorable example. The past week’s action presents a half full/half empty conundrum. But in the end, the appearance of heavy selling on any important rise is not new. (Neither is a German government growling about gold sales – this morning’s specimen, from the Chancellor, appeared right on cue). What might be new is the appearance of large scale professional accumulation, which has to be aware of what it is facing.

    While waiting for this struggle to resolve, it is refreshing to find Bianco Research continuing in its’ acidic critique of the authorities. Discussing the flood of Fed speeches today they say:

    "According to the Federal Reserve… (the CRB) …is no longer a measure of inflation. Further, any relationship to the …(10-year Tips inflation breakeven rate) is misguided. Just because the correlation between these series has been 65%, they will stress that "correlation does not imply causation." And since this causation doesn't fit their story, they would recommend that both of these measures should be ignored."

    "According to the Fed, inflation is what they say it is. They say it is not a problem. They will tell us when it's a problem."

    "In fact, there is really no need to release February PPI. It's not necessary. Lastly, since they fixed the NAICS categories and released January PPI, what's the delay with releasing February PPI? Is it another bad report like January?"

    A thoughtful GATA stalwart Ed Steer suggested last night that the LBMA may be waiting for options expiry today before releasing what may be dreadful (for them) February silver volume numbers. A spike above 200 million ounces per day in volume (should it be that high) will be the death knell for the gold cartel's metals manipulation scheme as it will most certainly bleed into gold and possibly...oil. China has been on an oil buying tear of late and the public exhaustion of any major commodities market inventory will only spur them on.

    This week, Ted Butler highlighted an interview with the President of a silver processor in New York State called Ames Goldsmith, which claims to process about 50 million ounces of silver per year.

    At that site, they indicate that they recover silver from about 2000 tons per year of silver catalyst used in the manufacture of ethylene oxide ..EO.. (mainly a precursor to ethylene glycol used in anti-freeze).

    I have done some quick patent hunting and web searching tonight and come up with the expectation that such catalysts will probably have an average of 5% silver content, so Ames might recover about 3 million ounces of silver from this material.

    Given that Ames seems to handle silver quantities comprising about 5% of total global silver usage, and probably close to 10% of all industrial usage, it is possible they almost have a monopoly on the recovery of silver from EO catalysts in the USA.

    The USA annual production (capacity) of EO is about 9 BILLION pounds and the general market value of EO is about $0.50 per pound. This would imply that the family of EO and EO downstream products add up to about $5 billion per year.
    "World consumption of ethylene oxide is 14 million tonnes (US$11 billion) and is growing over 3% a year. The USA is the largest producer of ethylene oxide, with production of almost 4 million tonnes a year. Asia is the largest consuming region of ethylene oxide, accounting for 37% of world consumption, while demand is growing fastest in Europe, which is experiencing, on average, a 4% growth per year. Germany and the Netherlands are the major exporters."

    As a very uneducated ballpark estimate, I might expect that the global EO catalyst (standing in reactors and in recycling) might be in the range of about 15-20 million silver ounces, with the average life of the catalyst being about 2 years. It is also noteworthy that since most of the silver can be recovered, this use of silver should only have a very small NET NEW DEMAND on silver....perhaps about 2 million ounces.

    I think this is a very interesting example of how about $10 million of new silver might be consumed each year to support a very solid global EO industry producing about $10 billion worth of revenue.

    If silver went to $100, then it might begin to make up about 1% of the costs in global EO.......still far under the other major costs of capital for such huge plants.

    On the other hand, it might increase the "capital allocation of silver value in the reactor" to a global value of about $2 how painful it would be for companies who have been creative and are "leasing" the silver in their reactors....rather than "owning it".

    We all know how much managers of the last couple decades have been forced to "work their capital" and that "leasing" of capital assets has been a good trick to take assets off the book....and goose "ROI". I suspect that there are many uses of silver (chemical catalysis, electrical generation, etc. which have large amounts (several hundred million ounces) of silver essentially in place. As these components wear out, they may often be replaced with components having equal amounts of silver. But, if silver rises in a grand way, the "owners" of these assets will experience a capital value increase concordant with the number of silver ounces in the object....but are obligated to show return on that capital....especially if they are a leasing agency themselves.

    By the way.....the names of the companies producing EO look like some of the who's who in the Silver Users Association.

    Ethylene Oxide
    BASF, Geismar, La. 630 thousands of pounds per annum
    Dow, Seadrift, Tex. 930
    Dow, Taft, La. 1,460
    Dow, Plaquemine, La. 620
    Eastman, Longview, Tex. 230
    Equistar, Bayport, Tex. 750
    Formosa, Point Comfort, Tex. 550
    Huntsman, Port Neches, Tex. 1,200
    Old World Industries, Clear Lake, Tex. 700
    PD Glycol, Beaumont, Tex. 640
    Shell, Geismar, La. 1,260
    Sunoco, Brandenburg, Ky. 110
    Sunoco, Claymont, Del. 110

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