From Ed Steer:

Gold gained about $10 in early morning trading in the Far East on Thursday, but that vanished the moment London opened, and the lows of the day were at the London p.m. fix. Silver's chart was similar. The HUI was down a bit, but gave it the old college try in its attempt to finish in positive territory. Although the prices of both metals were down, it was a pretty constructive day from a technical point of view.

I note that South Africa's gold production in July was down 16.4% y/y. Physical gold demand continues to be off the charts. In a story posted at Kitco, dealers reported a shortage in gold bars in Singapore and Hong Kong. Indian premiums yesterday were "hugely above import point" according to the usual NY commentator. My bullion dealer here in town is currently quoting January delivery on new silver orders.

As I've said many, many times...physical supply or demand mean absolutely nothing when it comes to price! 90% of price action is determined by the interplay between the tech funds in the Non-Commercial category (of the COT) and the '2 or 3' U.S. bullion banks in the Commercial category...who's buying, who's selling, and how much. Nothing else matters.

In another piece of interesting news, I see that (unlike the GLD ETF) there was no change in the SLV ETF yesterday...despite the fact that the silver price got creamed all week. Maybe they'll show a drop in it today. But it's pretty obvious that the market now has a different set of rules that apply to physical gold...than those that apply to physical silver. And so they should. That should tell us a lot.

I got an e-mail question yesterday that I want to share...and I get this question all the time. Hopefully, neither I (nor Ted Butler) will get it again if I answer it in public too..."Why is the CFTC doing nothing? I thought they are the regulators." Answer: They're supposed to be, but they're not doing their job. Their real job is to protect the shorts in gold and silver...and other markets of interest. The chairman of the CFTC is a member of the President's Working Group on Financial Markets. He does what he's told to do...and he's doing what he's being told to do right now!

Is see that "China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp." In a Wall Street Journal story..."Warren Buffett's Berkshire Hathaway Inc. has told one of its subsidiaries to stop insuring bank deposits above the amount guaranteed by the federal government, dealing a fresh blow to the financial services industry as it tries to assuage anxious customers." And in a Bloomberg story..."More than 30 percent of European high-risk, high-yield bonds are trading at distressed levels, the most in five years, stoking speculation defaults will rise." And lastly, I see that Ben and Hank are out trying to arrange a marriage for Ms. Lehman before she turns into a pumpkin. How much that will cost the US taxpayers will be of great interest. And just one more thing...there's talk of a feds fund rate cut before the end of the year...before the election perhaps?

In the first story, the gold price suppression scheme made it on to world-wide television today thanks to CNBC and Martin Hennecke, senior manager of private clients at Tyche Group in Hong Kong. At about the seven minute mark of an 8 1/2-minute interview, Hennecke began to talk about precious metals, remarking that their recent decline resulted in part from the general de-leveraging of commodity and dollar-short positions and in part from central bank efforts to suppress the gold price. Hennecke specifically cited the report published a year ago this month by Citigroup market analysts John H. Hill and Graham Wark, who wrote that central banks were "clearly" capping the gold price. The CNBC interview is linked here.

Today's second story is from the Financial Times in London. It's about the default of Fannie and Freddie's Credit Default Swaps which are estimated to be in the $500 billion dollar range. The story...entitled "Insurers and banks face huge CDS losses"...is linked here.

The Federal Reserve, in conjunction with the U.S. Treasury, is doing its best to prevent a systemic collapse. The efforts have been successful so far, and likely will continue to be for a while. The Fed and the Treasury will do whatever is necessary to save any entity that might otherwise implode the system. They will create and spend any money needed, they will arm-twist anyone they have to, they will manipulate any market, financial statistic or news medium that will help contain the still-intensifying crisis. Failure here is not an acceptable option. - John Williams, shadowstats.com, 10 September 2008

What we are witnessing is a total economic, financial and monetary hallucination. It's Alice in Wonderland come to life...or if you prefer a 21st century equivalent...that would be The Matrix.

All of us at Casey's Daily Resource Plus look forward to seeing you here on Saturday. Have a great weekend...and don't forget to buy some physical silver and gold...if you can find any.

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