From Ed Steer:

As I mentioned in yesterday's commentary, it would be interesting to see how the rest of Thursday's gold and silver trading was going to turn out after the early Thursday morning take-down in the Far East. As it turns out, gold bottomed shortly after Sydney closed and rose again until the silver fix in London. From there it fell until the London close. Then it rose steadily until it went vertical just before 1 p.m. NY time. Gold made it all the way to $918 before the boyz showed up. At precisely the same time, the Dow began a rally from -150 to +130. Then about and hour and a half later, with the Dow heading back into negative territory, gold really got smacked and the Dow had another 300+ point rally. The US$ was on fire all day.

Silver followed the same path as gold. From a $13.00 high at the London silver fix, silver closed $1.10 off its high...and lower than its Wednesday close. Gold also closed below its Wednesday close. Based on yesterday's action, I have no clue as to what today will bring. However, from a technical point of view, both metals put in what's known as a key reversal to the downside. This is negative. But whether that means anything in this current insanity is unknowable. As I said in my closing commentary yesterday, "The President's Working Group certainly had their work cut out for them." It's obvious that they were out and about.

However, the most interesting aspect of the huge run-up in prices on Wednesday was the fact that gold o.i. only rose 809 contracts! The biggest one day price move in gold in history and that's all? Even more incredible...silver o.i. fell a stunning 4,432 contracts on a $1.50 price move to the upside! If these numbers are true, then this could have been a short covering rally on a massive scale in both metals. There could also have been spreads lifted as well, but it's a strange time of month to be doing that. I wonder if it was the bullion banks themselves covering their shorts...shorts they couldn't cover on the way down, they're covering now...and that's why the price rallied. It could have been...and that's why nobody showed up to stop them. They were the buyers! Is this a fact? No, but it jibes with the open interest numbers. If this is true, it's hugely bullish. I'll report Thursday's o.i. on Saturday. Too bad this info won't be in the COT until the 26th.

The news continues to come thick and fast. I see another two money market funds 'broke the buck' yesterday...Putnam Prime Money Market Fund...which is refunding all its clients money after a run on its assets. Then there was the Bank of New York Mellon's Institutional Cash Reserves Fund. I see that the SEC is now planning on banning short selling on all Wall Street brokerage stocks temporarily and may also require hedge funds to disclose short sale positions. And the big story of the day, which probably triggered the huge short covering rally at 2:30 yesterday, was the news of the possibility of a massive, U.S. taxpayer funded bailout to attack the mortgage crisis and calm financial markets...according to a Reuters story filed late yesterday afternoon.

In other news I see in a Bloomberg story that "China will scrap the tax on stock purchases and buy shares in three of the largest state-owned banks to shore up investor confidence..." And lastly it appears that Ford and GM are going to get the $25 billion in loan guarantees from the government that they were asking for. These two companies alone account for 10% of the corporate high-yield debt market in the US.

Apparently the financial system bailout is on. Here's a story from the Washington Post entitled "Citing Grave Financial Threats, Officials Ready Massive Rescue". The link is here.

And just to show you that precious metal demand is still off the charts, here's a Bloomberg story with the headline "Gold Coins, Bullion Sales Go 'Gangbusters' as AIG, Lehman Fall". My bullion dealer would concur. The link is here.

Does the Fed honestly believe that handing out another $85 billion in capital will solve a $500 trillion problem? The Fed is continuing to reward bad behavior and is delaying the inevitable. There is a time-tested rule, whether with employees, children, or even pets; rewarding poor behavior results in more of the same. Financial managers respond in the same way. - Olivier Garret, CEO, caseyresearch.com

With the world going mad all around us, I thought I'd include this video that landed in my in-box yesterday. It's a hoot...and I hope you get a good laugh out of it. It's called "Hitler Gets a Margin Call". The link is here.

I see that Goldman traded as low as $85 yesterday and Morgan Stanley was down to $11.70 at one point. Only the short covering rally saved their bacon. These guys are just as insolvent as the rest of their buddies. Will this massive government-proposed bail-out be successful? Not a chance. It may save the firms, but the money machine that Wall Street and the banking system was, doesn't work anymore. The credit markets are frozen solid...no matter how many hundreds of billions of dollars are being thrown at it. The world's central banks dropped nearly $300 billion into it yesterday and it made absolutely no difference whatsoever. Nobody wants to borrow and nobody wants to lend...and there isn't a damn thing that Bernanke and Paulson can do that will change that.

See you on Saturday.

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