From Ed Steer:

On Wednesday, gold vacillated between $740 and $750 all through the Far East and early European trading. Gold struggled to tack on about $20 within two hours of the Comex open in New York, but then it was lights out for the rest of the regular trading session. Silver's peak occurred an hour or so later. The boyz weren't going to allow a runaway gold price after the Fed's interest rate decision. To give you an idea of how hard they've been sitting on the gold market, consider this...in the last 36 hours (as of midnight last night)...the US dollar was down almost four full cents, the US Fed Funds rate was cut by a third...and gold was only up $30-40. Check your own charts if you doubt me. The gold price should have been up several multiples of that. Trading was heavier in silver than in gold...and in actual fact, if you remove the effect of switches...gold trading was extremely quiet.

However, the precious metals stocks have been on fire for the last couple of days...and I'd like to think that the smart money and the insiders know that gold and silver prices are going much higher. The Commitment of Traders report for both precious metals (and every other commodity for that matter) hasn't been this bullish in at least five years...and the one due out tomorrow will be even more so. If there ever was a time for a moon shot...this is it...as the set up is perfect for it. But like I said, we still have to get past JPMorgan, HSBC USA...and a US election.

Open interest changes for Tuesday were a surprise. The gold o.i. seemed semi-normal...down 588 contracts to 313,709...but it was the o.i. in silver that was the eye-opener. Instead of dropping a bunch...o.i. was up 1,818 contracts instead. I wonder what combination of long liquidation/buying, short covering and spreads gave rise to that number? It's impossible to tell. I only hope that this information is in tomorrow's COT. It should be, because the cut-off for the report was Tuesday at the close of regular trading on the Comex...and the bottom occurred in early Tuesday morning trading in London.

I got an e-mail from Ted Butler yesterday which is worth sharing. It has to do with backwardation in the silver price. We're not there yet, but the events of the last several days indicate that we seem to be heading in that direction. Here's the e-mail, where I'm paraphrasing a bit..."Based on the settlement prices just posted (yesterday afternoon at the close of regular business on the Comex...around 1:30 Eastern time), the silver spreads have tightened noticeably over the last few days. Last week the Dec/Mar silver spread was about 4.5 cents. On Monday it was 3.8 cents, and is now down to 1.4 cents today (now yesterday). There is some tightening on gold spreads, but not as pronounced as silver." In a subsequent telephone conversation, Ted mentioned that it's the bad guys (JPM/HSBC) that control the spreads...and this narrowing will not go unnoticed by traders who follow these sorts of things. Ted explained to me that backwardation is synonymous with a shortage of good delivery silver...i.e. 1,000 ounce bars. IF we end up in backwardation (which is what this recent data suggests is about to happen), then nobody will be able to deny that there is a shortage. I'll keep you posted.

In other gold news, I see in a Reuters story that Newmont Mining has reported that "The company's average production cost per ounce of gold rose to $480, from $374, a year earlier...while its average costs per pound of copper rose to $1.98, from 64 cents, in the year earlier quarter." Those are substantial increases! Yesterday, both the GLD and SLV were unchanged.

In other news, a story in the NY Times said that lenders are significantly curtailing both their credit card offers and lofty credit lines. The paper adds that the retrenchment is even impacting credit-worthy consumers. Of interest, the article notes that after writing off an estimated $21 billion in bad credit card loans in the first half of the year, analysts believe the industry is likely to lose at least another $55B over the next 18 months. On Monday, GM and Chrysler wanted to borrow $5 billion so they could afford to merge. Yesterday they upped the ante to $15 billion! In a headline out of The Times in London "West goes cap in hand to the East for credit crunch help". And lastly, a headline from a Yahoo U.K. reads "Russia military offers Cuba air defence aid". How many of you are old enough to remember the Cuban Missile Crisis? Just asking.

Two stories today. The first is from Hugo Salinas Price...one of the richest men in Mexico. I mentioned him last week when I was talking about the silver Libertad production being slashed by the Bank of Mexico. This directly affects him, as his large chain of stores in Mexico each has a branch of Banco Azteca in it...and he makes sure that they all sell the Libertad...and they do. His stores are the biggest Libertad distributors in all of Mexico. The story is an absolute 'MUST READ' and is headlined "Banco Azteca: New policy on purchase and sale of silver 'Libertad' coins." The link is here.

My second offering is a photo essay of runaway hyperinflation...which may be coming to us one of these days. This will give you some idea of what to expect. It's all in pictures...with very few lines of text...a Gee-Dubya type of executive summary if there ever was one. The link is here.

click to enlarge

A liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money. - G. Gordon Liddy

Yesterday's Dow performance was underwhelming...as it literally fell of a cliff in the last half hour of trading. Even I was surprised. However, as I put the finishing touches on this in the small hours of Thursday morning, I see that the Nikkei was up a bunch...and now the S&P futures are spun higher...so the PPT is obviously going to give it the old college try again today in preparation for end of the month mark-ups. We'll see what next week...and the new month...brings. I'm not optimistic.

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.