From Ed Steer:

Gold fell gently in Far East trading yesterday...losing a handful of dollars until about 3:30 p.m. in Hong Kong. From there it rose about $15 to its high of the day around the London a.m. fix. It stayed basically unchanged from there until about a half an hour before the Comex opened, then down it went...with the bottom coming shortly after London closed for the day. The slight gain that occurred from there until the Comex close was completely negated by the time Hong Kong opened this morning. Silver was similar. The HUI got hit for 5.92%...but did not close on its low of the day.

Gold open interest on Wednesday's big price spike zoomed up a more-than-substantial 10,997 contracts to 293,712. I haven't seen a number that big in many a moon. But the real shocker was silver. Open interest actually fell 1,034 contracts to 86,350...on a 70 cent increase in the silver price. Go figure! Too bad that these changes won't be in the COT until just before New Year’s Day.

The usual N.Y. commentator had this to say about gold sales at the European Central Bank for the last couple of weeks..."On Tuesday the ECB weekly statement indicated one captive CB has disposed of E21Mm of gold: 1.04 tonnes. The previous week the drop was 2.08 tonnes. The ECB group does not seem to want to appear involved in gold at present." He also had this to say about yesterday's gold activity..."Reversing the recent pattern, world gold peaked in Europe, holding the mid $870s for four hours prior to the NY open. Massive selling then hit the market as NY opened, such that 58% of the day's estimated volume of 114,095 lots (switch effect 6,886) was done by 9am, and 73% by 11am, by which time gold had lost more than $25 from the intra-day high. The loss on the day at the floor close was only $7.90, but the day's range was $30.60, and aggressive selling appeared in the after market."

Options expiry for January (not a big delivery month in either metal) is December 23rd. The latest Commitment of Traders report comes out today at 3:30 Eastern time, and I'll report on it tomorrow.

Yesterday I spoke of a possible 'correction' in the gold market based on the way that the HUI acted both before and after that big gold price spike got clobbered on Wednesday. Did it just get started yesterday...or was that it? Too soon to tell, would be my answer. But it's a pretty good bet that just about every long that was placed on Wednesday, got taken out Thursday. What JPMorgan giveth...it can take away just as fast. Is there more down-side? As I said...we'll see. But one thing is for sure...this is a manufactured correction...not a natural one.

SLV added another 122.79 tonnes of new silver on December 18th to show 6,762.30 tonnes held by custodians in London. Over the past three trading days SLV has added 156.56 tonnes. I again thank Gene Arensberg for this information...and the graph below.

click to enlarge

In other news, I see that GE and GE Capital are about to lose their AAA credit rating. Why is this a surprise when they've already shown up at the Fed's door looking for money? Now the word from George Bush is that he might consider allowing the Big 3 auto makers to go Chapter 11. He said it would be "throwing good money after bad" by bailing them out. (Note to Bush: Isn't that what the Treasury and Fed have been doing to Wall Street and the banking system for the last twelve months? - Ed) And here's the laugh of the day. In The King Report this morning, a story out of The Times in London..."Senior executives of Credit Suisse will have their bonus payouts linked to about $5 billion (£3.2 billion) in illiquid assets such as leveraged loans and mortgage securities...making employees take on the risky assets some of them put on the Swiss bank's balance sheet." That's just too cute for words! They should try that little manoeuvre on Wall Street next.

The following info was sent to me by a daily reader, but was meant "for J.P. Morgan's private banking clients. To preserve the integrity of our ongoing dialogue with you, it is important that this information remain private." (Note to JPMorgan: "Integrity"...what would your firm know about that? - Ed) "Wednesday was a seminal event in the history of U.S. monetary policy: the Fed achieved in 15 months what the Japanese took almost a decade to do, which is to move to a 'zero interest rate policy' in the face of deflation risks. The following chart shows the relative speeds of the Fed and Bank of Japan in achieving this target."

click to enlarge

Today's first story is an essay published by Trace Mayer, an accountant, lawyer, journalist, and proprietor of the Internet site RunToGold.com. He has done a wonderful job exposing the weaknesses of gold and silver exchange-traded funds, as those weaknesses are acknowledged in their own prospectuses. Mayer observes, "There is no assurance that the 'gold' held in the ETFs is actually the same gold as defined under the periodic table." This essay is basically a rehash of the work that goldmoney.com's James Turk had already done in this area several years ago, but it's still worth the read nevertheless. Mayer's essay is headlined "A Problem with GLD and SLV ETFs" and is linked here.

The next story is commentary about GATA Chairman Bill Murphy's Thursday morning meeting with Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission. He was there to make the case about the price management of the precious metals by JPMorgan et al. I'm sure the Commissioner needed no explanation from Mr. Murphy...considering that the CFTC's own numbers show that '2 or less' US banks hold the biggest manipulative short positions in the history of any commodity, in both silver and gold. The link is here.

And lastly, an interesting story from the Financial Times in London. It's a little on the longish side, but it gives good reason why the Baltic Dry Index has lost almost 95% of it's value in the last six months...and why even bigger troubles lie ahead for the shipping industry world wide. I thank Craig McCarty for the story. It bears the headline "Dead Wait"...and the link is here.

Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular. People used to buy certificates...now they want physical gold. - Fiorenzo Arbini, Pamp Refiners, December 17, 2008 (Reuters)

Why anyone would keep a nickel of their assets in any kind of paper is beyond me. The equity markets are toast. The dollar's current decline looks terminal...and the bond market is another big bubble in search of a pin. The world's financial system is in desperate straits...and the "Inflate or Die" Syndrome has been unleashed over the entire globe. The quote above says it all..."People used to buy certificates...now they want physical gold." He obviously means "physical gold in hand"...not in some paper form which is, once again, someone else's promise to pay.

Until Saturday...

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