From Ed Steer:

After Thursday's rocket ride to $918...that got quashed by over $75 in the next three hours...gold managed to tack on a modest $20 in Friday's trading. Silver's recovery from Thursday's shenanigans was steady and far more substantial...up about 70 cents...and there's a reason.

My comments yesterday about the '2 or 3' bullion banks covering their short positions on Wednesday's big price rises (in both gold and silver) appears to be the correct assumption. Their short covering caused the price rises. That's why there was nobody shorting that rally, as the shorts themselves were doing the buying. They are now attempting to cover even more short positions before the tech funds show up to buy at the 50-day moving averages. Although the bullion banks are covering their gold short positions as well...it's silver that's at centre stage of the precious metals universe right now.

And if further proof is needed that these price rises in both gold and silver are driven by short covering...here's some more. Thursday's gold o.i. dropped 6,542 contracts and silver o.i. fell another 629 contracts.

In a conversation with Ted Butler yesterday, he said that the '4 or less' traders (probably only one) are/is short 46,733 silver contracts as of the COT cut-off on Tuesday. That's a bit over 265 million ounces of silver...and, as you now already aware, they've covered a lot more since.

As of the end of trading on Friday, the GLD ETF had added 65 tonnes (2.1 million ounces) in the last three business days. On Thursday, the silver ETF...SLV added 2.1 million ounces itself...and on Friday added another 4.0 million ounces. And lastly, my bullion dealer had another phenomenal day on Friday, as these higher prices continue to flush out the fence-sitters. Just think about it for a second...the lower the price went, the more people bought...and now that the prices are rising again...the more people want to buy. How the boyz are going to cut off this stunning physical demand from all over the planet remains to be seen. But it will require monstrously higher prices over a very tiny time period...and that's probably coming soon. Then there's the little matter of the precious metal ETFs scattered here and there. No wonder the boyz are trying to get out from under their precious metal short positions.

In other news, I see that the Comex has raised margin rates on both gold and silver...gold by 47% and silver 20%. In commentary released by Frank Veneroso yesterday, he expects both Goldman Sachs and Morgan Stanley to fail. In a Yahoo News story yesterday, "The Treasury Department announced Friday it will tap into the super-secretive Exchange Stabilization Fund...a Depression-era fund...to provide guarantees for the nation's money market mutual funds." And lastly, according to Debka, Russia has flown a couple of long-range bombers into Venezuela for 'training exercises'...and in a surprise move, the Russians have disclosed that they had ten warships anchored in the Syrian port of Tartus.

Today's first story (and well worth the read) is from the Financial Times of London and was written by Roger Altman...deputy US Treasury secretary under President Bill Clinton. He was co-head of investment banking and a board member at Lehman Brothers in the 1980s. The analysis is entitled "Modern history's greatest regulatory failure" and the link is here.

Today's second offering is an item from gata.org regarding Citigroup's latest gold report. Chris Powell, GATA's secretary treasurer, provides the preamble...and the link is here.

And here's another story from the New York Times that was published early Saturday morning. It too, is well worth the read, and is entitled "A Hail Mary Pass, but No Receiver in the End Zone." The link is here

It is notable that the hard-core gold bugs have been proven correct in the decade-long contention that an overwhelmingly vast and complex pool of nested financial derivatives would ultimately result in cascading defaults and ruin for major portions of the banking system. Frankly, we're surprised that Gold is not already at $2,000 per ounce. - John Hill/Graham Wark, Citigroup Gold Report - 17 September 2008

This week's 'blast from the past' goes back into the classical repertoire of the latter part of the 19th century. Virtuoso violinist and composer Pablo Sarasate's (1844-1908) most famous offering (written in 1878) is entitled Zigeunerweisen...or Gypsy Airs (Op. 20)…a virtuoso piece in C minor for violin and orchestra. It's frighteningly difficult...and I bet the sheet music for it must be a sight to behold! The challenging solo part consists of long spicatto runs, along with double stops, artificial harmonics and left-hand pizzicato. In this video, child prodigy Sarah Chang is accompanied by the Berlin Philharmonic under the baton of Plasido Domingo. This is a video to be watched as well as listened to. So turn up your speakers, click here, and try to keep up with her finger work as best you can.

Without question, nobody alive today has ever lived through a week like we've just had. It was history in the making. The US financial system came close to imploding...now it's only frozen solid. What the Fed and the US Treasury are attempting has never worked...ever. They (and the rest of the world's central banks) are trying to save the world's fiat currency system. None has ever survived the test of time...and these won't either. We are watching the death throes of a giant beast, and as it flails about on the ground, it's best to stand well clear of it.

There will be more history made next week, and I'll see you then.

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