From Ed Steer:

Tuesday morning's wonderful rally in both gold and silver, which began at 2:00 a.m. New York time, got totally blown out of the water about an hour after the Comex opened. The usual NY commentator had this to say..."Today, a breakout attempt on the NY open was met with massive selling: almost half the days' volume had traded by 9 a.m. After that, gold drifted: up though, to finish up $15.80 on estimated volume of 119,525 (less 6,984 for switches)." I spoke with Ted Butler yesterday, who said that volume was extremely light on Monday and only slightly heavier yesterday. The 119,525 contracts is only so-so, volume wise. Silver's flight path followed a similar pattern.

Open interest numbers for Monday are in...and they are more than worth noting. On Monday's huge rally in gold...and big loss in silver...gold o.i. dropped another 3,054 contracts. Silver's o.i. fell as well, down 1,060 contracts. The tech funds and small traders are still pitching longs...and the '2 or 3' bullion banks (Ted thinks it's just one...JPMorgan...and I'm not arguing the point) covered more shorts. Why I said the open interest numbers were worth noting is because, in all likelihood, the gold rally on Monday was of the short-covering variety. One would hope that all these numbers will be in the COT on Friday.

I note that gold lease rates are starting to show signs of life...which shows that there's a little stress out there. The rates will have to get quite a bit higher than this before it spells big trouble. However, with the way things are going right now, that could occur at any time...and with no warning at all. There was a story in the Financial Times out of London yesterday about this very thing entitled "Central banks all but stop lending bullion". Gee...I wonder if this has anything to do with counterparty risk? The story is well worth the read, and the link is here.

I also note that the US Mint announced that they will no longer be making the half and quarter ounce gold eagles for the balance of 2008...and will stop the tenth ounce gold eagles mintings as soon as blank supplies are depleted. Something stinks to high heaven here. About three weeks ago Nick Laird over at sharelynx.com came up with this graph of gold eagle sales for the last 15 years. The mint says that they can't handle the orders this year. That's a pile of crap! Take a look at 1998/99 when they were cranking out between 150-230,000 one ounce gold eagles per month. There were no shortages then. One ounce gold eagle sales for all of 2008 (and I'll throw in the 24K gold buffaloes as a bonus) are just under 600,000 so far...which isn't even 70,000/month. Something does not compute here. Is the US Mint deliberately withholding retail gold and silver products from the public? I don't know...I'm just asking.

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On Monday, the SLV was up 889,125 ounces...and another 946,617 ounces was added to the Swiss silver ETF, which now has north of 28 million ounces in it. On Monday, the GLD added another 147,708 ounces...plus another 25,000 ounces yesterday. The US Mint has already stamped out 425,000 silver eagles and 45,500 gold eagles so far this month. And lastly, I see that Richard Russell is saying that gold could go as high as $30,000/ounce by the time this debacle is over. Well, if the US wants to bring any credibility back to its currency....it will take a large five digit gold price to do it. Nothing would surprise me at this stage of the game...or as things get worse down the road.

As the "end of the world as we know it" bears down on us, the news stories are coming thick and fast. As I did yesterday, I'm going to ignore all of them to keenly focus on the vital few...instead of the trivial many. The crash of the financial system is anything but trivial...however one has to think past that now. The question becomes...where do we go from there? Today's first story is a GATA release that contains an important video clip from CNBC. The story is entitled "CNBC airs prediction of default in paper gold". It's well worth watching...and the link is here.

The second essay is from The Wall Street Journal and is written by economist and author Judy Shelton. It's another call for the return to the Gold Standard...or "universal reserve asset" as she calls it. The story is entitled "Loose Money and the Roots of the Crisis". The link is here.

We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars. - Ambrose Evans-Pritchard, 05 October 2008

The Toronto Stock Exchange, or TSE as it's know here in Canada, does not have Hank Paulson, Ben Bernanke or the rest of the President's Working Group on Financial Markets to support it every day of the week. And because a lot of our economy is resource based, it has done rather poorly of late, as this cartoon in yesterday's local paper here in Edmonton carefully pointed out.

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As I put the finishing touches on this in the very wee hours of Wednesday morning, I see that silver and gold are once again trying to break out to the upside in European trading. The dichotomy between the physical market and the paper market is extreme beyond description. This must (and will) be resolved with a very major price adjustment to the upside. It's just a matter of how soon...and from that point...how high both the gold price and silver price will go. Don't forget, there are NO daily price limits on either gold or silver. In one Comex session, the 'powers that be' can have both gold and silver prices at whatever number they want...and it's all perfectly legal...according to the NYMEX/COMEX's own rule that they changed about 15 years ago. The only reason that I can think of, for why they changed that rule, is because they knew that at some point in the future they were going to have to use it. I believe that time is approaching fast.

See you tomorrow.

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