As silver rose the largest short sellers seen taking a powder HOUSTON – Gold traders have their eyes on two non-confirmations that so far have refused to “answer” gold’s push to new all time nominal highs – the relative price of silver to gold and the performance of the equities of mining companies. Silver is lagging gold and the action of mining shares, both big and small, have thus far refused to reflect investor confidence that gold will be able to maintain its remarkable ascent. At the same time we have to take note that other indicators we dare not ignore are signaling continued strength for gold and especially silver. Chief among them are a surge of positive money flow into silver ETFs, bullish action in CFTC commitments of traders positioning (of the largest gold and silver futures traders) and the fact that both gold and silver futures in New York closed the week in significant backwardation again. We’ll have more about all that below, but first here’s this week’s closing table:This Week’s Bottom Line Summary (in bold) Our bias remains cautiously bullish for gold, silver and mining shares. Stops tight, but not too tight. This week we note slightly positive money flow in many gold ETFs. Significant positive money flow into the leading U.S. silver ETF (bullish). Both gold and silver ended the week in backwardation on the COMEX futures markets, with the cash price actually higher than the front active contracts (bullish). Price action suggests firming bids but increasing resistance. Tighter high-low spreads, with silver still refusing to “answer” gold’s advance (bearish). Late week action seemed favorable, with traders apparently more worried about being short than being long going into the weekend. The U.S. dollar remains the sickest member of the global fiat currency leper colony, having cut new 74-handle index lows before a late week feeble rally. Meanwhile, as the buck fell, ICE commercials stood aside, refusing to fade the greenback weakness to any degree by not adding DXY net long positions (detailed below). Well-financed mining shares jumped nicely, along with the U.S. Big Markets (our nickname for the DOW, NASDAQ and the S&P 500), but continue to underwhelm (bearish). Bulletin: The largest of the largest gold futures traders, the always net short traders the CFTC classes as commercial, actually reduced their net short positioning for gold as it increased in price. (Even more so for silver as detailed below.) Despite the improvement, prudent traders will remain cautious. For all the details don’t miss the Gold and Silver COT sections below. Repeating from previous reports: With a nod to the Trading Gods (so as not to offend them too much), the action right now is reminiscent of the last time the short-happy COMEX commercials were overrun – for months and months – beginning in August, 2005, as gold first challenged, then tested, then blew through the very staunch defenses thrown up by the hedgers and short sellers in the $450 - $475 region. Gold went on to test the $730s the following May, some 60% higher than where the commercials took their “goal line stand” that August of “ought-five.” (A similar move in this event would take gold up to around $1,520 the ounce, give or take $100. That’s not a prediction, just an observation.) So, we have to keep the caution flags flying because of the enormous net short positioning of the COMEX commercials. But in this case, that caution extends equally to both bulls and bears. While it is usually bearish in times of such extreme commercial net short positioning as we detail below, it is also exactly the condition we expect to be in place when the “Big One,” the seminal technical definition move higher we have been expecting, (a high percentage explosion), finally occurs. We almost certainly cannot have one without the other. Tight stops remain the standing order of the day, but not too tight! With the over-sized commercial net short positioning and (significant) backwardation in play, dips should, repeat should, be well bid while advances could potentially be explosive. MIND YOUR STOPS or employ appropriate “insurance” for all at-risk positioning now, if not already accomplished. Well-placed stops offer protection against unexpected adverse calamity and they make for a much better sleep regimen. Please note: Gold Newsletter (GNL) subscribers received this issue of the Got Gold Report Monday morning, November 15. GNL subscribers enjoy access to all Got Gold Reports, technical charts, analysis and information, as well as Brien Lundin’s timely and actionable analysis of specific resource related companies. For more information or to subscribe visit the Gold Newsletter home page. Now, a closer look at a few of this week’s indicators: Gold ETFs: SPDR Gold Shares (GLD), by far the largest gold exchange traded fund, reported a net increase of 5.49 tonnes for the week. GLD reports that it held 1,113.83 tonnes of gold bars held by a custodian in London. Metal holdings at GLD are roughly 20 tonnes less than the all-time high water mark of 1,134.03 tonnes set on June 2, 2009. Source for data SPDR Gold Shares. Barclay’s (In December it will become BlackRock’s) iShares COMEX Gold Trust (IAU), reported no change to its metal holdings this week, showing 79.81 tonnes of gold held in COMEX warehouses. All five of the gold ETFs sponsored by the World Gold Council (WGC) collectively recorded an increase of 7.35 tonnes of gold metal, to a combined 1,311.19 tonnes (42,156,119 ounces) worth about US$46.6 billion as of Friday’s close. We note, then, slightly more buying pressure than selling pressure in the world’s gold ETFs over the past week. The authorized market participants for gold ETFs add gold (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa. Silver ETFs: Barclay’s (also soon to be BlackRock’s) sponsored iShares Silver Trust (SLV), reportedly added another 213.93 tonnes to show 8,954.08 tonnes of average 1,000-ounce allocated silver bar inventory for the week, a new record. Despite silver’s relatively weak performance to gold, this week we note considerably more buying pressure than selling pressure for the largest silver ETF again, suggesting that larger investors continue to add SLV exposure on most any weakness in the silver price. Since the inception of SLV in 2006 we see a clear trend of positive money flow into the trust (more buying pressure than selling pressure) as evidenced by increases in the amount of metal held by the most popular silver ETF. At now just under 9,000 tonnes (287,880,359 ounces) of silver metal held, some analysts believe that SLV controls up to a quarter of all the existing good-delivery bar silver available in London. What we find interesting about that is that all the silver held by SLV only amounts to a little less than $5 billion as of Friday’s close. In today’s global-market world, $5 billion isn’t really all that much. As just one comparison, the U.S. government utilized 36 times that much ($180 billion) just to bail out one large U.S. insurance company (AIG) in 2008. Do we have to point out that we are talking about the holdings of just one silver fund? It wouldn’t take very much of an increase in the amount of global investment demand to put material upward price pressure on the rest of the remaining silver inventory in the tiny silver market. With gold at $1,100-plus now, we believe it is merely a question of time before a new surge of investment demand for silver erupts worldwide. Now that China has re-legalized precious metal bullion and is encouraging its citizens to accumulate physical metal, it is also just a question of time before people begin to realize the relative scarcity of actual physical silver metal compared to gold. As we have pointed out in previous reports, today versus 1980 we have 51% more humans using 1,000% more dollars-yen-euro-yuan, etc. to chase 50% less real silver metal in a world where anyone can buy the metal with a mouse click in their study, in their underwear. If the world holds it together and we manage to avoid a second brush with systemic financial system collapse, the new rush into silver that Jim Rogers now predicts could make the one in 1979-1980, when silver briefly tested $50, look like a warm-up. No wonder we are seeing new positive money flow into SLV on most any dip. Got silver? Gold advanced to print a new all time nominal cash market high ($1,123.50 Thursday) and also turned in a much higher weekly low ($1,095.83 Monday, see the opening table for comparison to last week). We were impressed by gold’s tenacity during the Monday sell-down attempt to the $1,090s. “Someone is all over the bid at $1,097” reads our notebook from Monday, November 9. High-low spreads contracted as shown in the closing table above, suggesting a new, higher consolidation range is brewing. The last trade on Friday printed $1,119.20 on the cash market, an advance of $24.04, or 2.2%, for the week. Gold in euro terms also advanced by 1.5% to €749.51. Please see the gold charts linked below for more technical commentary. Silver more or less failed to answer gold’s advance this week, usually a bit of a warning signal. However, the second most popular precious metal did manage to print a slightly higher high ($17.78 Monday) and a considerably higher low ($17.01 Friday). Despite the underperformance, we noted that silver seemed to find support right at its 50-day moving average near $17.02 in the early Friday attempted sell-down. Our Friday notes read, “Attempt to break $17 twice now aborted. Very strong bids follow to $17.20s. – Bidding for SLV aggressive…” The last trade Friday printed $17.42 on the cash market for net weekly gain of four cents, or 0.2%, versus gold’s 2.2% add. Weekly high/low spreads contracted quite a bit as shown in the opening table, with the bid side doing most of the moving. Please see the silver charts linked below for more technical commentary. Backwardation in both gold and silver again Just as we saw two weeks ago in the last full Got Gold Report, both gold and silver futures ended the week in backwardation, where the cash or spot price was higher than the front active contracts. In the case of gold, cash gold closed at $1,119.20, which is $2.50 above the December contract as shown in the table below courtesy of Barcharts.com. Notice also that the cash price finished higher than the February contract by more than $1 and was just a whisker below April.

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