From Ed Steer:

Neither gold nor silver did much of anything until shortly after London opened for business. Then the roof caved in. The bottom for gold came exactly two hours later...and silver was about a half hour later than that. Then a ferocious rally began in both metals that was capped at the London p.m. fix...or shortly thereafter. From there, both metals tracked sideways. No surprises there.

Although yesterday's gold and silver charts look rather breathtaking in some respects, yesterday was options expiry...and as I mentioned...one should expect anything, so I wouldn't try to read a lot into this...except for the fact that the usual not-for-profit sellers showed up to make sure that things didn't get out of hand to the upside after the LBMA closed.

The usual NY gold commentator is still amazed by the huge ex-duty premiums in India as he writes..."I believe such a prolonged period of super premiums is unprecedented since gold imports were liberalized in India in the 1990s. It is a testament to the ferocity of the selling interest. (This means that India is buying physical gold with both hands. - Ed)

"Such selling interest does not include the ECB herd of Central Banks, apparently. This week's condition statement indicated that one captive CB sold gold and another had a ‘net purchase’ of gold coin, for a net reduction of €22Million in ‘gold and gold receivables’ – 1.16 tonnes at the current book value. Last week's quantum was 1.74 tonnes. The ECB apparently wants no part of the current gold market.

"This lack of WAG2 selling raises the question of who is providing the selling pressure. The Swedish Central Bank announced an intention to sell 15 tonnes in the next WAG2 year, which is neither here nor there.
"Yesterday's (Monday) strange day in gold – essentially sideways from the selloff at the TOCOM open, but down $7.80 because it incorporated a post-floor-close selloff achieved in NY on Friday – saw open interest slip by 713 lots, or 2.2 tonnes.

"Today's (Tuesday) action featured an abrupt $14 selloff fairly early in the European day, a ferocious $24 rally in the early NY day, a resolute $8 sell-off almost into the close, but a late rally for an up $2.40 close. Estimated volume was 148,026 lots.

"The AM fix was $809.75, and the PM $827 – widely apart and the AM some $10 below the London open. Such moves could not have occurred without resolute selling and buying of physical.

"Who is out there?"

My bullion dealer here in Edmonton informed me yesterday that his supplier can provide all the silver he wants...if he's prepared to take it in Comex good delivery bars...i.e. 1,000 ounces troy. Everything else is 14 weeks...just in time for Christmas!

Nick Laird over at sharelynx.com had the following commentary and graph in Bill Murphy's MIDAS yesterday at lemetropolecafe.com. "The chart shown here makes one wonder why the U.S. Mint can't handle the volume of sales. Back in 1998-99 they were selling 3 times the quantities today & never a whisper on rationing." Cheers...Nick.

click to enlarge

The wall-to-wall bad news headlines yesterday...Alabama County prepares for bankruptcy in debt crisis...Russian stocks and currency tumble as Medvedev recognizes the independence of the two breakaway regions of Georgia; South Ossetia and Abkhazia...and in a Bloomberg story..."The worst rout in the history of commodities may be ending, signalling a replay of the 2006 tumble that preceded a doubling of prices in the next 17 months as measured by the Standard & Poor's GSCI index. Only this time, the driver is supply cuts rather than increasing demand." (Whatever the reason, let's just get on with it. - Ed)

Two stories today...both of them about Fannie and Freddie. If you look under the hood of these two financial black holes, you'll find a lot of creepy-crawlies near their respective event horizons that most people haven't given much thought to.

The first of which is an excellent piece by Gretchen Morgenson of the New York Times. Bailing out these two GSEs may not be as easy as earlier thought. The implications of a default on the companies' subordinated debt shows how complex...and potentially costly...these bailouts might become. The story...entitled "What Will Mac 'n' Mae Cost You and Me"...is well worth spending some time on, and is linked here.

In the second F&F story, Yu Yongding, a former adviser to China's central bank said in this Bloomberg article..."If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic. If it's not the end of the world, it is the end of the current international financial system." Not too many shades of grey in that. The story is linked here.

My choices early in life were either to be a piano player in a whorehouse...or a politician. And to tell the truth, there's hardly any difference. - President Harry S. Truman

The gold cartel-inspired 'summer doldrums' in the precious metals should have about three more days to go. What will September bring? Well find out after the long weekend.

I hope your day goes well, and I'll see you on Thursday.

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