From Ed Steer:

Well, the wonderful rally we had on Tuesday was not allowed to blossom into anything on Wednesday. The high of the day was about 15 minutes after trading began on the Globex trading system at the start of the business day in Sydney, very early Wednesday morning. From there, the price oscillated between $750 and $760...until half an hour after the London p.m. fix. Then, the $20 price spike that we had on Tuesday at that time, was completely reversed...almost to the penny.

In silver, every rally ran into a not-for-profit seller. I counted eight price reversals in that 24 hour period...from when the Globex opened in early morning trading in the Far East...right up until Globex trading ended in New York yesterday afternoon about 5:15 p.m. That's the last six hours of the blue trace and the next 17 hours of the red trace on the Kitco chart below. And as I've said ad nauseum ...NO profit-maximizing seller ever trades like this...ever!

click to enlarge

Open interest for Tuesday's big rally day in both metals showed gold o.i. down 1,036 contracts to 303,908. As I said in my commentary yesterday, the $20 spike in the gold price just after the London p.m. fix looked like a short-covering rally to me. It appears that it was. Hopefully it will show up in the COT tomorrow afternoon. In silver, o.i. rose 1,095 contracts. Considering the 80 cent rise in the silver price on Tuesday, a number like this should not be a surprise.

The big gold news yesterday was the word out of Venezuela, that the giant Las Cristinas gold project operated by Canadian miner Crystallex, would be taken over by the Chavez government. Las Cristinas is already owned by the government, but operated under contract by Crystallex, which has waited for years in vain for permission to begin mining the deposit, located in a huge forest reserve in south-eastern Venezuela. "This mine will be recovered and will be operated under state administration," the mining ministry said to a Reuters reporter. The company said it had not been informed of any change to its status in Venezuela. "We are pending on issuance of the (environmental) permit. Those discussions have been going constructively," said Crystallex spokesman Richard Marshall. "There's been no indication of any change whatsoever."

In other news, I see in another Reuters story that The Institute for Supply Management noted that the U.S. service sector shrank unexpectedly sharply in October....down to 44.4 from 50.2 in September. And in a Bloomberg story headlined..."Credit Card Bond Sales at Zero, First Time Since 1993"...Credit card companies were shut out of the market for bonds backed by customer payments in October for the first time in more than 15 years, as investors shunned the debt amid the global credit freeze...Top-rated credit card-backed securities maturing in three years traded at a spread of 475 basis points over LIBOR, during the week ended Oct. 30th. American Express used the Federal Reserve's commercial facility program for the first time on Oct. 29 as available funding shrank." Wonderful! Even the credit card companies are at the public trough now. Lastly, I see that GM, Ford and Chrysler are already in discussions with the new Obama administration. It would be my bet that the US government will be in the car manufacturing business within twelve months.

Today's first story is from the Daily Mail in London. Back in 1999, the British Chancellor of the Exchequer, Gordon Brown, sold off a pile of England's gold under the most unfavourable circumstances imaginable. It was strongly rumoured that the gold was sold to save the hides of some of Britain's bullion banks who had been caught out in gold's huge price spike after the first Washington Agreement on Gold was formulated. Now Mr. Brown is the Prime Minister, and a rather embarrassing question arose from the opposition benches in the House of Lords the other day. The 'golden' story about that is linked here.

In today's second story...having unleashed deflation, the Fed mulls over how to get inflation back. The article is from the Financial Times in London and is entitled "Deflation Risk Boosts Inflation Target Case" and the link is here.

And in another Financial Times story headlined "Ways Out of the Liquidity Trap" is the following comment..."If ordinary policies fail to avert slump and deflation, the monetary printing press is the final tool at the disposal of policy makers. The government could borrow directly from the central bank and distribute the newly created money to households and firms." So get ready for the Fed (and other central banks) to print even more money than they already are. The link is here.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. - John Maynard Keynes

I wish I had a crystal ball to see into the future, but I don't. I'm not optimistic about anything except the precious metals...and for the moment they are being held in place. The COT says that the 'bottom is in' for just about every commodity on the planet...including our beloved gold and silver. And I see in a Bloomberg story released moments ago, that the Bank of England is considering cutting their interest rates to zero. So it's just a matter of time before all the world's central banks will be running their printing presses non-stop. I'm prepared to wait them out.

See you on Friday.

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