From Ed Steer:

The moment that trading in Hong Kong opened on Tuesday morning, both gold and silver got bushwhacked. In all my years of watching the Kitco precious metals charts, there has never been a day like this in Far East trading...ever.

Gold held above $800 (barely) and silver bounced at $14 (barely). As I said in my commentary on Monday night, I was going to be somewhat reluctant to turn on my computer on Tuesday morning. Fortunately, the worst had passed (for the time being?) as both metals rallied from the Hong Kong bear raid...right up until the London p.m. fix. That was the top in prices for both metals...and it was all downhill from there.

Open interest for gold on Monday's shellacking showed a drop of 9,912 contracts on huge volume. This is not a lot for such a huge price decline. There was probably fresh shorting by the tech funds and more long buying by the bullion banks that blunted this number somewhat. As for silver...for the sixth day in a row, open interest rose...this time by 778 contracts. The boyz are doing an excellent job of keeping the real magnitude of the selloff from prying eyes. Hopefully, all this will be in the COT on Friday, but I'll bet a ten spot that it isn't.

Here's what the usual NY gold commentator had to say yesterday..."Today’s ECB statement of condition reported a drop of €14 million (0.74 tonnes), attributed to sales by one captive CB (central bank). Last week's quantum was 2.47 tonnes. Clearly the ECB does not want to appear involved in gold at present – one wonders why it was worth bothering with such a small sale. Perhaps it was option related.

"Yesterday's (Monday) $36.50 (4.2%) loss on Comex saw open interest slip 9,912 lots (2.5%). One might have expected a large drop: probably there was some fresh shorting.

"Today (Tuesday) world gold dropped over $20 on the TOCOM open, despite there having been no recovery since the NY close. This is very unusual. Both TOCOM and Shanghai locked limit down, and a recovery attempt was blocked at the close. The performance reeked of tape painting, especially as local physical demand was reported.

"Last night, MarketVane’s Bullish Consensus dropped to 65%, the lowest in a couple of years.

"A rally on Comex was neatly eradicated going into the close. Volume was again massive: estimated at 206,604, with a switch effect of only 10,000 lots.

"Gold appears firmly clasped by the bears at present. At least the Indians are happy."

That's for sure! With gold (and silver) prices this low, the physical off-take is going to be tremendous from everywhere in the world...and I'm sure the bullion banks know that. My coin guy here in Edmonton has been doing great business all month...especially yesterday. Investors have finally smartened up, as more and more are buying the dips, rather than buying when prices are screaming to the up-side. If you check Tulving (and others) these days, you'll note that they're sold out of just about all their bread and butter items. The retail market is in a deficit situation in both silver and gold. No one knows what retail demand is right now, because there just isn't enough supply to fill it. Ted Butler could be right...they're cannibalizing investment demand to ensure that the industrial users are well fed.

A story that had sort of fallen off the front page of the papers yesterday is the conflict in Georgia, where Russia has invaded to protect its citizens in South Ossetia. Medvedev and Putin are no fools...attacking when the US can't help its puppet government in Tbilisi. Putin sent one of his economic advisors to GATA's gold conference in Dawson City, Yukon a couple of years back. Then a few months after that, he was photographed holding a bar of gold in his hands. It's a pretty good bet that Putin now knows that the western world's bullion banks have a 'golden' problem...but will he exploit it if/when push become shove? However, the picture is worth a thousand words.

The story (with a Western slant) about the current flare-up in the Caucasus is from The Times out of London and is entitled "Analysis: Why the Russia-Georgia conflict matters to the West". The link is here.

Today's second story is one that's been up at Bloomberg for the last couple of days, but I wanted to make sure that you didn't miss it. It's another story about the mysterious demise of Bear Stearns. This time it has to do with put options that were placed against the company...a lot of them. One of the commentators in the story said that a way to determine a link to whether the BS failure was premeditated or not, was to "Follow the puts." My only comment is this: If they "follow the puts" in the Bear Stearns case like they "followed the puts" placed on American Airlines in the week before 9/11, then the BS investigation will peter out, too. The rather longish story is entitled "Bringing Down Bear Began as $1.7 Million of Options"...and the link is here.

Last year, at a meeting of the Committee for Monetary Research and Education, I said that if a world-wide nuclear war broke out and only one financial market in the world was still functioning in a city that had escaped destruction, what remained of the U.S. Federal Reserve and Treasury Department would find that market and sell promises of gold, and gold would go down, at least for the day, lest any financial market people who had survived the war think that anything was wrong. - Chris Powell, Secretary Treasurer, GATA

So...are we done? Is this the bottom? I'm too gunshy to say yes. Let's see how the next 24 hours go...and then we can talk about it.

I hope your Wednesday goes well, and all of us at Casey's Daily Resource Plus look forward to seeing you on Thursday morning.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.