From Ed Steer:

There wasn't a lot to read into gold and silver prices on Wednesday, as they sort of wandered aimlessly ...down in London and up into the New York open. Then down again until London closed...and then a rise in both metals until Comex trading was through for the day, then they flat-lined in Globex trading after that until the 5:15 NY close. Not a lot of volume, either.

On Tuesday, gold open interest rose 5,461 contracts and silver o.i. fell 801. Considering both metals had reasonably large rallies on Tuesday, it's hard to know what to think of these diametrically opposite numbers. These numbers too, should be in the COT tomorrow...maybe.

As I've mentioned a couple of times before...with the 20-day and 50-day moving averages still way above the spot price, there are no reasons for the tech funds to start buying. Only when some unknown combination of these moving averages are broken to the up-side, will the black boxes tell the tech funds to buy. Also, and not to be forgotten, is options expiry for silver next Tuesday the 26th. September is a huge delivery month for silver, so there may be lots of strange goings-on between now and then. First day notice is Friday, August 29th.

As Ted Butler keeps harping about, 90% of all major price moves (either up or down) are a direct result of the interplay between the tech funds in the Non-Commercial category and the bullion banks in the Commercial category of the COT...depending on which one is buying and which one is selling.

The usual New York gold commentator had the following to say about Wednesday's activity...as India's ex-duty premiums were off the charts again on Wednesday and obviously that country was a massive importer of gold once more.

“This is a completely unprecedented situation, including the 1999 and 2001 lows. It is not a matter of a single city...although Ahmedabad is used here as a benchmark...similar results are seen at the other import conduits. Conceptually, India's well-financed and professional bullion importing community should be, and historically has been, able to import whatever the local market demanded without premiums rising above a couple of dollars...except perhaps fleetingly and anomalously. At a glance, it looks as if there is an impediment in the market--similar to the unavailability of metal at many North America dealers.

“Slightly comfortingly, John Reade at UBS” (A permanent gold bear - Ed) “also finds the situation unprecedented: ‘We had a long conversation with our physical gold specialist in Zurich yesterday as he wanted to update us on what had gone on in the market over the past few weeks. Erwin, who has traded our physical book for 20 years, reports that over the past two weeks our vault staff have been the busiest he can remember across his career, with demand for all types of gold from all sorts of clients. The only time we were as busy as this was in the first half of 2005, when rampant demand from India bought all the gold we could supply. Recent demand has been as strong as this, but more geographically spread: the Middle east, some parts of Europe and other Asia (ex-India) have also seen very good buying, with refiners struggling to supply their customer needs.’

“On Tuesday, the ECB's (European Central Bank) statement of condition revealed that ‘gold and gold receivables’ fell last week by E24 million, 1.26 tonnes at the current book value. The previous week's reduction was 0.74 tonnes. The ECB group does not (want) to appear involved in the gold market at present."

In a corroborating Reuters story about Indian imports was the following comment... “Krishna Kumar Nathani, managing director of consultancy Indiabullion.com, agreed: ‘There is no ready delivery of gold available, for love or money’.”

And from a story filed at mineweb.com comes these three paragraphs from a Citigroup analyst... “While gold is suffering during this time of a rallying U.S. dollar, nevertheless, Citigroup advised, ‘We would be aggressive buyers at current levels.’

“While Citigroup finds that gold ‘has been punished amid a broad-based correction in commodities,’ the analysts assert that the floor in the U.S. dollar ‘is likely a short-term blip for gold, as it underscores the frailty of fiat currency globally.’

“We see gold as attractive, heading into a period of seasonally strong physical out-take, which tends to tighten the market and allow any negative macro catalysts to be rapidly transmitted to prices. ...Gold will likely shine over time. Long-term drivers remain intact; falling mine production...especially in S. Africa, competitive currency devaluations, wealth creation in India/China, and petrodollar flows.”

I have two terrific stories today...a double header from Asia Times Online. The first is about Pakistan and the stories coming to light now that Musharraf has stepped down to avoid impeachment. In this case it has to do with the cozy (maybe now ex-cozy) relationship between Bush, the CIA, Musharraf, the Taliban and al-Qaeda. Lots of skeletons in the closet here. The story is headlined "Bush buried Musharraf's al-Qaeda links" and the link is here.

The second story is about Georgia and Russia...and the NATO/US response to the 'war' in that Caucasian nation. The essay is entitled "US falters on NATO's failure". The link is here.

For those of you who do not understand the historical context of what's going on from the Red Sea to the borders of Afghanistan...and would like to know more about it, I would recommend two books. The first is A Peace to End All Peace: The Fall of the Ottoman Empire and the Creation of the Modern Middle East by David Fromkin...and the second...former national security advisor to Jimmy Carter...Zbigniew Brzezinski's book The Grand Chessboard: American Primacy and its Geostrategic Imperatives.

See you on Friday.

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