From Ed Steer:

Well, it should have been no surprise to anyone that the boyz were gunning for gold yesterday. The rally in Sydney was crushed the moment Hong Kong opened...and another rally attempt that started at 3:00 a.m. New York time, going into the London open, met with the same fate. Another rally attempt before the Comex opened was capped...and then crushed at the London close...and that was it for the day. Silver's chart pattern was similar. It looks like a war zone on the Kitco gold and silver charts these last three days, as $900 gold and $12 silver are being tested by the bulls...only to be trashed by the bullion banks. Let's see what happens in the days ahead now that options expiry in both metals is past. Will we go higher from here...or is this a false breakout, as I mentioned the other day?

Gold open interest on Tuesday fell a fairly large 7,282 contracts to 354,191. On the other hand, silver o.i. went up a conterintuitive 286 contracts...however, just about everything associated with the silver market is counterintuitive these days.

Here's an e-mail exchange I had with Ted Butler yesterday that you may find of interest. To set the scene, neither October nor January are traditional delivery months for silver. Maybe a small handful of buyers would call for delivery. However, in October...1,100 contracts were delivered...5.5 million ounces. As of Tuesday, there were 1,600 silver contracts delivered on the Comex in January...8 million ounces. Ted was amazed by the 1,100 contracts in October...and blown away by the 1,600 in January. From here, we pick up the e-mail exchange...

Ted: (early p.m.Wednesday) Today was the last trading day for January COMEX futures contracts. Kinda interesting in silver. After a very high total amount of deliveries of 1,600 contracts (8 million oz) for silver for the month so far, the estimated volumes suggest 500 were traded on Thursday, Will have to wait for tonight's official volume but it is a very noteworthy amount. Plus, Jan. settled at a slight premium to the Feb. contract...and even with March. It reflects tightness (along with just about every other indicator).

Ted: (late last night)...Official volume stats show 500 Jan. silver traded today.

Ed: Does that mean another 500 contracts were delivered in the January delivery month? You said that's what it meant. So now we're up to 2,100 contracts delivered...right?

Ted: Close, but not exactly. The 500 contracts traded today is likely to result in an increase in Jan. open interest. Maybe by 500, maybe less (depends on how they count the volume). That new open interest must be settled by delivery, or delivery equivalent (an EFP...or Exchange For Physical). We need a few days to know for sure. But it is very likely that Jan. will end up with 2,000 or more contracts delivered, a very significant number. Hell, 1,600 was already a significant amount.

On Tuesday I ran a graph of the current holdings of the gold ETF...GLD. Today I've got the same graph for silver, which Gene Arensberg was kind enough to provide on a moment’s notice late last night...for which I thank him. According to Gene..."So far this month, SLV has added 660.16 tonnes of new silver to its holdings. If we don’t count the first two months after its inception, this is the largest one month addition of silver metal to SLV."

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In other precious metals news...zimonline.co.za (Harare)... “Major business organisations in Zimbabwe last week took aim at Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono demanding that he pass all outstanding funds to the couintry's gold mines so they could be able to resume production...Zimbabwe's gold mining sector, one of the country's biggest foreign currency earners, has collapsed because the RBZ has diverted payments to fund government expenditures.” In a story from fin24.com filed from Johannesburg..."Hedge book sale knocks AngloGold" It appears that Africa's largest producer, AngloGold Ashanti lost 34 cents for the September quarter after selling a part of its gold hedge early...about 580,000 ounces during the September quarter. The company will be down to (only) 6 million ounces hedges by year-end. And lastly, the U.S. Mint has increased the premium on silver eagles again...up another dime per coin.

In 'other news'...The Telegraph (Davos) Russian prime minister Vladimir Putin has called for concerted action to break the stranglehold of the US dollar and create a new global structure of regional powers. 'The one reserve currency has become a danger to the world economy. That is now obvious to everybody,' he said in a speech at the World Economic Forum. The Times (Paris) "The organisers of ‘Black Thursday’ say that more than a million protesters are expected to take to French streets today as transport and other public services are disrupted in the biggest act of resistance so far against the 20-month-old administration of President Sarkozy."

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The first of three gold stories from the mainstream media today is from Reuters in New York. The headline reads "Gold attracts more flows amid recession". The story goes on to say that "as 2009 gets under way, the yellow metal has found huge traction with money managers." The link is here.

The next is from The Wall Street Journal. The headline says "Getting a Grip on Gold's Price" and the link is here.

The last story about gold today is from Bloomberg. "Greenlight Capital Inc. founder David Einhorn is finally taking his grandfather’s advice. The $5.1 billion hedge fund is buying gold for the first time amid the threat of inflation from increased government spending. Since Einhorn was 10 years old, his grandfather has warned him that investing in bullion and gold-mining stocks was the only ‘sensible’ thing to do given the threat of inflation and the risks of so-called fiat currencies, New York-based Greenlight said in a Jan. 20 letter to clients." The title to the piece is "Greenlight Founder Takes Grandfather's Advice on Gold" and the link is here.

A vital function of the free market is to penalize inefficiency and misjudgment and to reward efficiency and good judgment. By distorting economic calculations and creating illusory profits, inflation will destroy this function. - Henry Hazlitt

Three gold-related stories from major main-stream media outlets on the same day? Who would have thought that possible only 18 months ago? Slowly but surely, we're getting there. The world is starting to gobble up the physical metal at an ever-quickening pace. The British pound, the Euro and the Canadian dollar price of gold set record highs recently...as did many other currencies. Soon the rush will be on everywhere. It will be interesting to see how long the U.S. government, and its agent JPMorgan, can stand the pressure...and how much more gold they're going to throw at the market in a vain attempt to try and stop the unstoppable. So...we wait.

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.