Harvey Organ’s Daily Gold and Silver Report

Saturday, April 30, 2011

Gold Rockets to $1570 high/closes at record levels/CME raises silver margin requirements

Good morning Ladies and Gentlemen:

Before beginning, I would like to announce our latest entrants into the our banking morgue, having taken their last breath last night.  Last week, Sheila gave the troops a week off and she made up for it last night in the closing of 5 banks.  Here is the bank closing information courtesy of Jim Sinclair :

Bank Closing Information April 29, 2011
Gold officially closed (1:30 pm est comex closing) at $1556.00 up $25.20 for the day.  Silver was all over the map, closed at $48.58 for a gain of $1.06.  Silver reacted to the news of a second margin hike announced late Thursday night which was to take effect at the comex market close at 1:30 Friday.  This is the second hike in silver margins.  Here is the official announcement by the CME (courtesy Dow Jones News Wires)
CME Increases Trading Margins Amid Silver’s Volatile Ride

  • By Tatyana Shumsky

NEW YORK (Dow Jones)–Exchange operator CME Group Inc. (CME) raised margins for Comex silver futures for the second time this week as silver prices soar amid much volatility.
The higher margins take effect at the close of trading Friday, the exchange said. The CME revises its margin requirements as a normal course of business, and has previously raised bond requirements during times of high volatility to guard traders against additional risk. The operator owns New York Mercantile Exchange, which trades silver on its Comex division.
For speculators in the benchmark 5,000-ounce silver futures contract, the exchange is raising initial margin requirements, or the deposit required to purchase a contract, to $14,513 per contract, up from $12,825. Maintenance margin requirements, or the additional capital needed to keep the contract overnight, will increase to $10,750, from $9,500.
For hedgers and exchange members, both the initial and maintenance margin requirements will also increase to $10,750 from $9,500 per contract.
CME also raised margins for the Comex silver trade at settle contracts, which allow traders to lock in the day’s settlement price for their purchases or sales.
Additionally, the exchange raised initial and maintenance margins for Comex Miny silver futures and the E-Mini silver futures contracts.
Thursday’s increase follows a similar margin increase Monday, and comes during the astonishing volatility in silver prices. Silver posted another huge price swing Thursday, with the front-month contract rising 3.4% to a record settlement of $47.520 a troy ounce. Investors have been flocking to this relatively small market to take advantage of the metal’s much lower price than that of gold, which is sky high.

The increase in margins spooked both longs and shorts as the cost of leverage in the metal rose.  It now costs $14,500 in initial margins and another  $10,750 for maintenance  ( if you keep the contract overnight).  For long holders to keep their positions, one needs over 25,000 thousand dollars or a little over 10% of the contract of $245,000.  (49 x 5000 oz). The margin hike is thus justified to keep leverage in tow.
Let us head over to the comex and see how trading fared yesterday.
As mentioned above, gold finished trading at $1556.00 but in the access market it zoomed again and finished at $1,565.70 for a gain of almost 30 dollars for the day. Silver in the access market felt the weight of new margin requirements and fell to $47.94.
The total gold comex OI fell by 5174 contracts from 537,619 to 532,636 which of course is basis Thursday night. Gold advanced nicely on Thursday so we are getting a few bankers covering their shorts.  The noose is getting tighter and tighter for them on both precious metals. The front options expiry month of May for gold saw its OI fall from 457 to 202. It is this figure that I will use as amount standing for gold. There may have been some cash settlements here because we had every tiny deliveries of 19 sent down for first day notice. It continued again on the second day with only 1 delivery notice filed late last night.  The next battleground will be the June gold month as this month is the second biggest gold delivery month for the year.  The total OI for the front month of June saw its OI fall from 352,958 to 348,115.  This is probably where our bankers reduced some of their short positions. The estimated volume at the gold comex yesterday was surprisingly small at 113,335.  I guess those who demanded gold came in contact with short sellers (and thus buyers) . We had a dearth of sellers yesterday which will explain the huge rise in the price of gold.
And now silver:
The total open interest on the silver comex fell steeply by 6,132 contracts from 135,763 to 129,712. There is no doubt that the leverage for the longs suffered a bit but so did those shorts that have to pay margin requirements.  This created much volatility on the silver price yesterday.  All eyes are on the front delivery month of May were the open interest stands at 2166 contracts or 10.83 million oz.  The options that were exercised were given future contracts on Friday night and will be reflected in the numbers on Monday. I believe that Blythe will be some busy lady this weekend. The next battleground front month for silver is July and the OI rose from 76,365 to 78,060. We still have a long way off until we hit this trading month. The estimated volume at the silver comex was good at 77,167. The confirmed volume on Thursday, the day before first day notice was 226,267 where we witnessed most of the silver longs rolling to July and September.

Here is the chart for 4/29/2011 regarding deliveries and inventory changes at the comex. This will be the start for the May comex month for gold and silver.

Withdrawals from Dealers Inventory
Withdrawals fromCustomer Inventory
2958  (Manfra)
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
 101( Brinks)
No of oz served (contracts)  today
 19 +  1=  2000 oz
No of oz to be served  (notices)
 18200 (182)
Total monthly oz gold served (contracts) so far this month
 2000  (20)
Total accumulative withdrawal of gold from the Dealers inventory this month
Total acculumulative withdrawal of gold from the Customer inventory this month

Withdrawals from Dealers Inventory
Withdrawals from Customer Inventory
Deposits to the Dealer Inventory
Deposits to the Customer Inventory
No of oz served (contracts)  today
6  +  4
No of oz to be served  (notices)
10,780,000  (2156)
Total monthly oz silver served (contracts) so far this month
50,000  (10)
Total accumulative withdrawal of silver from the Dealers inventory this month
Total accumulative withdrawal of silver from the Customer Inventory this month.
Let us begin with gold. The comex folk notified us that were was a tiny 101 oz of gold enter the customer vault at Brinks.There was also a small withdrawal of 2,558 oz from Manfra. We witnessed another of those adjustments where the registered gold  label is being replaced to eligible as the bars do not have the required electronic warrants that indicate these bars are to be sold.  They thus become customer gold.  There were two adjustments:
1. 121,074 oz
2.  31,634 oz
thus 152,708 oz of gold left the dealer and entered back into the customer or not to be sold category.
The comex notified us that there were two separate gold notices for deliveries filed late on Thursday night and one of Friday night for delivery on Monday and Tuesday.  The first notice was for only 19 contracts (Thursday night) and the one last night totalled 1  contract.  Thus we have 20 delivery notices filed for 2000 oz of gold. The open interest for the May month for options expiry for gold totals 202 or 20200 oz of gold. This number will increase as the month of May ends.

To obtain what is left to be served, I take the deliveries  (20) and subtract out these from the OI 202 which leaves me with 182 notices or 18200 oz left to be served.

Thus so far, the total number of gold oz standing in this non delivery month of May is as follows:
2000 oz (served = 20 contracts)  + 18,200 oz (to be served)  =   20,200 oz.
And now for silver:

There were no deposits whatsoever into the dealer which is surprising in a delivery month of May. There were no deposits of silver by the customer.  We did have two separate withdrawals one in the dealer or registered category and the second in the customer (eligible category):

Withdrawal of silver from the dealer Brinks:  14,275 oz
Withdrawal of silver from customer:
1. 99,765 oz (Brinks)
2. 3022 oz (Scotia)
3. 3035 oz (HSBC)
4. 1050 oz (Delaware)
Total withdrawal of silver by customer:  106,872 oz  There were no adjustments.
On the first day notice we received confirmation that only 6 notices were filed against all of those oz that are standing. This proves the comex is having great difficulty in finding metal to satisfy our longs. Late last night, they filed another 4 notices for delivery and I will add both of these to arrive at the number of silver oz standing.
The total notices for delivery for the two announcements total 10 contracts or 5000 oz of silver. To obtain what is left to be served, I take the May OI  (2166) and subtract out the deliveries  (10) which leaves me with 2156 or 10,780,00 oz. When you have tiny notices with a large open interest standing certainly is causing headaches for our bankers as they scour the planet looking for metal to satisfy our longs.  No doubt Blythe will be very busy this weekend trying to encourage the option holders and the long holders of May silver to accept cash.  I would like to emphasize that a cash settlement is a defacto default.  However our regulators are not present so anything goes in this casino.
The total number of silver oz standing in this delivery month of May is as follows:
50,000 oz (already served)  +  10,780,000 (0z to be served)  =  10,830,000. oz.
Let us see how many leave for cash and how many remain until the end of May. The ultimate battleground in silver will probably turn out to be July.
Let us head over to our ETF’s
The two ETF’s that I follow are the GLD and SLV.  These two funds have no metal behind them and you should steer away from these fraudulent vehicles.
First GLD inventory changes:

Total Gold in Trust: april 30:2011

Tonnes: 1,229.64
Value US$:
the GLD: April 28.2011:  identical
we have no inventory changes in gold

How about the SLV?  April 30.2011:
Ounces of Silver in Trust 354,344,233.000
Tonnes of Silver in Trust 11,021.34
and from April 27.2011
Ounces of Silver in Trust 355,368,713.800
Tonnes of Silver in Trust 11,053.20

so we lost approx 1 million oz of silver from Wednesday night until today.

Let us head over to our closed physical funds that we follow: the Central Fund of Canada and Sprott’s gold and silver funds:
1. Central Fund of Canada:  Negative NAV 2.4% in Usa funds and negative 2.7% in Canadian funds.
2. Sprott silver fund  (PSLV):  Premium to NAV remains high at 16.46%
3. Sprott gold fund (PHYS): premium to NAV lowers to 4.24%.
There is no question that the bankers are punishing central fund of Canada for buying more silver and gold.  This is the first time in many years that we have seen a negative to NAV for this fund.
The COT report was released last night and it is quite telling.  The bankers are trying to cover their massive shortfall.
First the gold COT report:
Gold COT Report – Futures
Large Speculators
Change from Prior Reporting Period
Small Speculators
Open Interest
non reportable positions
Change from the previous reporting period
COT Gold Report – Positions as of
Tuesday, April 26, 2011
The large specs that have been long somehow got it wrong by taking profits and reducing their longs by 13,601 contracts.
Those large specs that have been short basically remained constant by adding only a tiny 59 contracts to their short positions.
The commercials:
those commercials that have been long gold added a very large 9,242 contracts to their longs and got it right.
Those commercials that have been perennially short gold, covered a very large 8,312 contracts as they saw the writing on the wall.  This is quite bullish as they are covering at higher and higher prices.
The small specs that have been long reduced those positions by 1,377 contracts.
Those small specs that were short added another 2517 positions and are crying this weekend.
And now for silver:
Silver COT Report – Futures
Large Speculators
Small Speculators
Open Interest
non reportable positions
Change from the previous reporting period
COT Silver Report – Positions as of
Tuesday, April 26, 2011
Those large speculators that have been long took some profits and covered 5,247 of their long positions.
Those large speculators that have been short, got it wrong by adding 3,524 contracts to their short positions.
And our famous commercials:
Those commercials that have been long silver got it right by adding 1,720 positions to their longs.
And our famous commercials ,like JPMorgan who have been short from the beginning:
they covered massively to the tune of 8438 contracts.  I will remind you that this was done from Tuesday to Tuesday with silver rising.  The bankers are feeling much pain with the rise in silver.
the small specs that have been long added a tiny 982 contracts to their longs and the small specs that have been short added 2369 positions to their positions.
In summary:  the bankers are seeing the light and are covering as fast as they can. They have a long way to go.
Let us go to the big stories of the day:
The precious metals market are reacting to this as the world seeing continual massive printing of paper fiat:  (courtesy of Reuters)
Bernanke says U.S. economy needs more time to heal
By Mark WASHINGTON (Reuters) – The U.S. economy is not fully recovered from its deep recession, with housing still weighing on growth, Federal Reserve Chairman Ben Bernanke said on Friday in a speech spelling out ways the U.S. central bank has studied lower income communities.
“Our economy is far from where we would like it to be,” he said in prepared remarks to a conference.
The Fed earlier this week said it will see its $600 billion bond buying program, launched in November to spur a weak recovery, through to its planned conclusion at the end of June.
The world’s largest economy grew at a sluggish 1.8 percent annual rate in the first three months of the year, but unemployment is still at a lofty 8.8 percent.
The depressed housing market is holding back the economic recovery, Bernanke said. Home foreclosure rates remain high and many families find themselves owing more for their homes than the homes are worth.
“Obviously, the problems in the labor market and the housing market are not unrelated,” he said.
The Fed chairman said Fed research shows loans to individuals and businesses through community development financial institutions can boost economic activity. That business generates tax revenues that in turn permits government spending in ways that benefit these communities, he said.
“We at the Federal Reserve will remain closely attuned to the economic health of all communities, including low- and moderate-income communities,” Bernanke said.
With rising prices fueling concern about inflation, the Fed is under some pressure to tighten policy after unprecedented and aggressive easing measures. Several Fed officials believe the central bank should act quickly to pare its bloated balance sheet and other major central banks around the world have begun to raise interest rates in response to price pressures.
However, the Fed made clear through a statement and a press conference by Bernanke on Wednesday that with a high jobless rate, extensive lost wealth, and inflation levels still not much higher than historic lows, the central bank has no immediate plans to withdraw support.
Bernanke said on Friday the economy is recovering at a moderate pace, and that there has been “welcome, if gradual” improvement in labor markets.

I highlighted this piece to you on Thursday but it is worth repeating:

Are States’ Pensions the Next Crisis?By The News & Advance
Published: April 28, 2011

Just as America is finally showing signs of digging out of the financial meltdown and the Great Recession of 2008, there are already warning bells being sounded for the next possible scare: government pension programs.
Earlier this week, the Pew Center on the States issued the results of its “fiscal stress test” of the 50 state pension programs, and the results are troubling to say the least.
All told, the Pew center estimates that government pension funds and health care programs are underfunded by more than $1.2 trillion today, a clear sign that something must be done now to avoid a great deal of misery down the road.
Though the Pew study looked at pension funds during 2008 and 2009, the depth of the Great Recession, the results should serve as a wake-up call to political leaders across the nation, including here in the Commonwealth of Virginia.
The Pew center reports that 31 states are funding their government pension funds at levels below the point most experts consider safe, 80 percent of the plan’s expected needs.Several states — CaliforniaIllinois and Ohio are among the worst — have shortfalls dangerously below safe levels. Illinois, the worst state, has only 51 percent of its plan’s projected needs currently funded.
Here in Virginia, while we’re not as bad off as some, there’s not much to be proud of.
The Virginia Retirement System, with about $56 billion is assets, currently has a projected shortfall of $17.6 billion. While that doesn’t mean that VRS, the source of retirement income for thousands of state and local government workers, is in any danger of becoming insolvent, it’s not a sign of long-term health.
Leaders of the General Assembly and the governor recognize the long-term problem of underfunding the VRS, but that hasn’t stopped them from dipping into the plan’s reserves in the past to cover holes in the commonwealth’s budget.
Such was the case during the 2010 session of the Assembly, when more than $620 million was shifted from the VRS coffers to the General Fund in order to balance the budget.
The Assembly promised to repay the VRS, with interest, but, to date, their promise remains just that: words.
Virginia’s not alone in “borrowing” from its pension funds, according to the Pew study. Many states decided to skip their payments to their employees’ pension plans in order to shore up their current cash reserves.
But what they don’t want to admit is that, sooner or later, the bill will come due. And the longer they wait, the higher the bill will be.
There is still time for state leaders, here in Virginia and across the country, to own up to the magnitude of the problem and take the actions needed, whether that’s cutting benefits or raising taxes and cutting spending in other areas to cover their obligations.
And they need to do it sooner rather than later.

Europe is feeling the massive inflation brought out by the rising commodity prices. They are set to raise interest rates over there:  (courtesy Reuters)
Euro zone inflation rises, points to higher ECB rates
BRUSSELS (Reuters) – Euro zone inflation rose further above the European Central Bank’s target in April, increasing the chances of an interest rate rise in June, despite a weakening of economic sentiment and household demand.
Inflation in the 17 countries using the euro rose to 2.8 percent year-on-year this month from 2.7 percent a month earlier, the highest level since October 2010, when it was 3.2 percent.
Consensus expectations had been for a flat reading compared to March ahead of next Thursday’s European Central Bank meeting on interest rates.
“I can imagine that some market participants will expect the rate increase by the European Central Bank at an earlier date. We expected June, the market is still expecting July. I guess the consensus will now move to June,” said Piet Lammens, economist at KBC.
The ECB raised its main interest rate from record lows of 1.0 percent to 1.25 percent in April, concerned about the impact on consumer prices of rising costs of energy and food.
Other data this month has suggested growth in both Germany and the euro zone is peaking and figures from Spain, the biggest of the economies under threat in Europe’s debt crisis, showed unemployment soaring and retail sales sinking.
A monthly European Commission survey showed economic sentiment in the euro zone as a whole fell for the second month in a row to 106.2 in April, down from 107.3 in March and below market expectations of a decline to 107.0.
“Survey data from the European Commission clearly indicates that the combination of high oil prices, a strong euro, and fiscal and monetary tightening has started to dent the economic mood in the euro zone,” said Martin van Vliet, economist at ING.
The decline in sentiment was in all sectors of the economy except construction, with consumer optimism falling the most to -11.6 from -10.6 in March.
ECB data also showed that the annual growth rate of loans to the private sector in the single currency area slowed in March, bucking expectations for a rise, but M3 money supply growth accelerated.
“Monetary data continue to point to a modest recovery in euro area money and loan growth,” said Christoph Balz, economist at Commerzbank.
“While the data in itself do not indicate upside risks to price stability that require further monetary tightening, they are further proof that the economic situation has changed substantially since 2009 — which is why the ECB thinks that extremely low interest rates are no longer appropriate.
More evidence of weakening household demand could be seen in retail sales data.
Sales in Germany fell in March, defying expectations of a rise as consumers bought fewer groceries and textiles during a month when inflation surpassed the 2 percent threshold.
Adjusted for consumer price rises, sales declined by 2.1 percent month-on-month, and by 3.5 percent year-on-year.
The drop in consumer demand was more pronounced in the “peripheral” euro zone countries seeking to win back market confidence in their public finances with tough austerity measures.
In Spain sales fell 8.6 percent year-on-year in March and in Greece the decline was 10.6 percent in February.
Euro zone consumer inflation expectations, which have been rising quickly since November 2010, edged marginally lower to 30.7 from 30.8. Selling price expectations among manufacturers, on the rise since August 2010, fell more markedly to 21.5 from 24.4.
The European Commission’s business climate indicator, which points to the phase of the business cycle, also fell for the second month in a row, to 1.28 points from 1.43 in March.
“Despite this, the current level of the indicator remains close to historic peaks, suggesting that the recovery in industry will continue in the coming months,” the Commission said.
Eurostat data also showed that unemployment in the euro zone held stable at 9.9 percent of the workforce in March.

I get a big kick out of this one:

U.S. gets C credit rating, lower than Mexico
By Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) — The U.S. got a sovereign credit rating of C on Thursday, in line with ratings for such smaller economies as Mexico, Estonia and Colombia.
Weiss Ratings, based in Jupiter, Fla., has rated the creditworthiness of financial institutions for several years, but the firm launched sovereign- debt ratings of 47 countries on Thursday. The U.S. rating of C (Fair) ranks it 33rd, Weiss noted in a statement.

As we have pointed out to you on many occasions, China has been cashing in on their huge usa holdings.
Here is this big story:  (courtesy of Terence Jeffrey of CNSNews.com)

U.S. Treasury: China Has Decreased Its Holdings of U.S. Debt
Friday, April 29, 2011
Terence P. Jeffrey

(CNSNews.com) – Mainland China has decreased its holdings of U.S. Treasury securities since last October, according to a report updated today by the U.S. Treasury Department.
Since September 2008, when they eclipsed Japan, entities in mainland China have been the largest foreign owners of U.S. government debt. But, as indicated by the Treasury Department chart linked here, Chinese ownership of U.S. Treasury securities peaked in October 2010 and has declined in each of the four most recent months reported by the Treasury Department.
At the end of October 2010, China owned 1.1753 trillion in U.S. Treasury securities. That dropped to $1.1641 trillion by the end of November, $1.1601 trillion by the end of December, $1.1547 trillion by the end of January, and $1.1541 trillion by the end of February 2011.
February is the latest month for which the Treasury has estimated foreign holdings of U.S. debt.
Back in February 2001, according to historical data reported by the Treasury, the mainland Chinese owned only $63.7 billion in U.S. debt. In the ensuing decade, the Chinese massively increased their holdings of U.S. Treasury securities, and especially in the past five years. In February 2006, China owned $318.4 billion in U.S. debt and Japan owned $656.4 billion.
In September 2008, the Chinese moved ahead of the Japanese in their U.S. debt holdings. At the end of that month, the mainland Chinese owned $618.2 billion in U.S. government debt and the Japanese owned $617.5 billion.
In the two years between September 2008 and September 2010, China increased its U.S. government debt holdings by $533.7 billion—from $618.2 billion to 1.1519 trillion. By the end of October 2010, China’s holdings of U.S. government debt had increased to their peak of 1.1753 trillion.
After that, mainland Chinese holding of U.S. government debt declined for four straight months.
Entities in Hong Kong have also been decreasing their ownership of U.S. government debt. Hong Kong ownership of U.S. Treasury securities peaked at $152.4 billion in February 2010. By the end of February 2011, that had dropped to $124.6 billion.
In fiscal 2010—which ended on Sept. 30, 2010—the U.S. Treasury needed to redeem $7.206965 trillion in maturing U.S. Treasury securities. In order to cover the principle on those securities and borrow the money needed to cover government expenses that exceeded government revenues, the Treasury needed to turn around and sell $8.649171 trillion in U.S. Treasury securities during that fiscal year.
So far in fiscal 2011—which began on Oct. 1, 2010—the U.S. Treasury has needed to redeem $4.176308 trillion in maturing Treasury securities and sell $4.769522 in new Treasury securities.
At the end of February, according to the Treasury, the total U.S. debt was $14.194764 trillion of which $9.565541 trillion was publicly traded Treasury securities. Of those $9.565541 in public Treasury securities, foreigners owned $4.4743 trillion—or almost 47 percent.
The $1.1541 trillion in U.S. debt owned by the mainland Chinese as of the end of February equaled about 12 percent of the publicly held portion of the U.S. debt and almost 26 percent of the publicly held portion of the U.S. debt that was owned by foreign interests.

Many of pointed out this story to me.  It is quite possible. I urge you to read it:  (courtesy zero hedge and GATA)

Zero Hedge speculates on short squeeze in silver
Submitted by cpowell on 10:07AM ET Friday, April 29, 2011. Section: Daily Dispatches
1p ET Friday, April 29, 2011
Dear Friend of GATA and Gold (and Silver):
Zero Hedge today cites GATA, GoldCore, and Max Keiser in an intriguing speculation about a short squeeze and cornering in the silver market. It’s headlined “GoldCore Questions on Comex Silver Default Due to Secret Buying by Russian Billionaire, Chinese Traders, and People’s Bank Of China” and you can find it here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


Well that about does it for the week. Next week we will see a lot of action in silver and gold. The COT report shows that in both silver and gold, the commercials are covering and they are covering at higher and higher prices.  This is extremely bullish for our camp.
We should see gold finally break into the 1600 dollar column and silver finally setting a new record high in excess of 50 dollars.
I wish all of you a grand weekend and I will speak to you on Monday.

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