From Ed Steer:

Just like Friday morning, gold blasted out of the starting gate as soon as Globex trading began in the Far East on Monday morning. And just like Friday morning, this price spike ran into a wall of selling that went on for about four hours. Then there was a respite until 3:00 a.m. New York time when another wave of selling commenced that lasted right through London...and until the Comex open. Then the dealers (mostly JPMorgan, I would think) pulled their bids for the third and last time...and the price of gold cratered another $10...for the third and last time. Silver really got it in the neck on the Comex open. There was nothing free market about this...this was the Gold Cartel...pure and simple. The US$ didn't even start to rise until after all the damage was done, so you can't blame it on that.

It was encouraging to see both metals come back smartly...especially silver. But I note as I write this, that both gold and silver are already under considerable pressure in Sydney and Hong Kong trading. Is there more downside in the price? By the time you read this we should have a better idea. Who knows what the boyz have in store for us to start off the New Year. Ted Butler said that with silver down over a dollar from yesterday's high, he was surprised that gold wasn't down $50/60...as JPMorgan et al have the tech funds right where they want them.

Gold open interest on Friday rose 962 contracts to 307,613...which is quite a bit off its lows, but nowhere near its previous high of around 600,000 contracts. Silver o.i. rose a smallish 114 contracts to 86,037. Open interest numbers for yesterday's precious metals bashing will be out later this morning...but the real nuts and bolts of what happened won't be visible until the Commitment of Traders report comes out on Friday...unless they hold back the information, that is. There was decent volume in both metals yesterday, with most of the action coming in silver. Ted figured the boyz cleaned out a pile of newly minted silver longs in both the Non-Commercial and Nonreportable categories.

Talking about the COT report, the one for last week arrived on the scene yesterday. It showed pretty much spot on what Ted Butler was expecting. Silver actually showed a small improvement over the prior week as the bullion banks covered 436 short contracts net. In gold, there was a deterioration of 9,976 contracts... as the bullion banks sold 1,085 longs and went short an additional 8,891 contracts. As I've been saying for weeks, the bullion banks (almost certainly JPMorgan in both gold and silver) have been going short against all long contracts placed. As long as they continue to do this, they will maintain their stranglehold on the price of both. The latest COT report is linked here.

In my conversation with Ted about the COT yesterday, he informed me that the '4 or less' traders in the Commercial category in silver (which would include JPMorgan, HSBC USA...and Citigroup) hold 65% of the entire net silver short position on the Comex. He said that this is close to the highest bullion bank concentration in this category in the last five or six years! It boggles the mind to think of where the price of both metals would be if these entities began to cover...or even stopped selling short against every long.

In other news yesterday, I see in a story posted at barrons.com a headline that read "Get Out Now!...The biggest investment bubble today...U.S. Treasuries...looks ready to pop, which will send prices on government debt sharply lower." (Good advice! - Ed) In a story at the telegraph.co.uk in London, a former Bank of England official says that "Americans must prepare themselves for a massive collapse in the dollar as investors around the world dump their US assets." At abcnews.com, I see that the President-Elect says he wants to create three million new jobs...80% in the private sector...which means (if you do the math) another 600,000 pigs at the public trough as well. In a Bloomberg story filed late last night, I notice that he's also talking about an aid package as high as $1.3 trillion. And lastly, I see in another Bloomberg story that the Federal Reserve Bank of New York started buying mortgage-backed securties yesterday as part of a $500 billion program to support the housing market. This is called "monetizing the debt." People are talking about a recovery later in 2009. This is a complete fallacy. The graph below should give you some idea of just how much more pain will have to be endured...and for how long. You should spend a few minutes on this graph if you have the time.

click to enlarge

The usual three stories today. The first is from Peter Brimelow over at marketwatch.com. It's entitled "Gold glitters, but some bugs are cautious". The link is here.

The second is from an unlikely source...at least for us on the GATA side of the street. In a letter to the editor of the Financial Times in London...Peter Munk, the Chairman of Barrick Gold Corporation...puts in a few excellent words about gold. It's entitled "Gold is selling at all-time highs"...and the link is here.

And lastly...in a story that appeared in the New York Times earlier this week...is this commentary by Martin Hutchinson. Nice picture of gold bars accompany it...with extensive comments about gold further down. The piece is entitled "Capital Question for Small Nations"...and the link is here.

In January 1980, just before the Federal Reserve avoided an inflationary catastrophe, the gold price peaked at $875. That is $2,430 in today’s dollars. But the pools of speculative capital are much larger now than in 1980. A true gold bubble could well leave this benchmark far behind. - Martin Hutchinson, N.Y. Times, January 1, 2009

Well, Friday's wonderful Dow rally didn't extend into Monday...and despite a new president moving into the White House...I see absolutely nothing to cheer about. My advice is still the same...buy as much physical gold and silver as you can afford...and take possession.

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.