In the closing paragraph of my comments yesterday, I said this about options expiry..."Will the U.S. bullion banks pull the pin...or will nothing much happen? Nobody knows...but we'll find out soon enough." I wrote that in the wee hours of Tuesday morning...not knowing that six hours later the bullion banks would do exactly that. It was ugly...and oh, so obvious. As I've said countless times before...no profit-maximizing seller ever sells like this...ever!!!

You can see where they pulled their bids four separate times...with the last producing a gap on the Kitco chart...something I'd never witnessed before, ever! From its peak price shortly after floor trading began on the Comex, gold had about $31 shaved from its price. The price gained a little back before Comex trading was over for the day, but most of that gain disappeared in electronic trading on the Globex which followed. The usual N.Y. commentator had this to say about yesterday's volume..."Estimated Comex volume, when it finally appeared, was somewhat surprising. Total volume in gold was 160,349 lots, of which 29,537 [18.4%] traded in the last half hour. Apparently what looked like quite a modest...and repressed...c.$5 rally, was actually quite a battle."

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Silver was even worse. But, as Ted Butler pointed out to me yesterday, that was the metal they were really after. It is the center of the universe for these guys, as there is no physical metal to be had in any kind of size. From its high peak yesterday to its low of the day, silver was down 92 cents. Lots of options expired out of the money yesterday. Silver also managed to claw back some of its losses before floor trading ended...but [like gold] all of that got taken away in the electronic trading session that followed.

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Now that the boyz have started the avalanche, it remains to be seen whether or not it will gain any down-side momentum. Ted says that to clean out all the tech longs [about 100,000 contracts] in gold that have built up over the last several months, the 50-day moving average would have to be punctured with some authority. If this is what their plan is, the question to be asked is...can they do it? Based on yesterday's close, the 50-day m.a. is $885...or thereabouts. This means that in order to get that kind of liquidation, they would have to shave another $80-85 off yesterday's closing price.

In silver, the 50-day moving average is $11.87...about $2.00 below yesterday's closing spot price as posted at Kitco. That's a long way. Ted figures that there are less than 10,000 contracts to be liquidated to get to the bottom of the silver barrel as far as the technical funds are concerned. Silver open interest had never deteriorated to anywhere near the same degree as gold had during this last price run-up...but the bullion banks would like to flush them all. Will they? Can they?

Don't forget that prices rise because the tech funds and small trader are going long. The bullion banks always take the short side of this trade. Then, when they figure they have all the mice [longs] in the trap that they're going to get, they start to sell, then pull their bids...hoping to start an avalanche of selling to the downside...just like they did yesterday morning. The tech funds keep their gold trading accounts at these same bullion banks that are taking the short side against their own long positions...so these banks know when the tech funds are 'all in'...so to speak. Doesn't this scenario warm the cockles of your heart? It's been going on for decades. And your mining companies do nothing...and the CFTC does nothing. Isn't life grand?!

Open interest changes on Monday showed an increase in gold o.i. of 3,652 contracts...up to 369,132. In silver, o.i. rose 2,819 to 101,745...which is quite a bit. However, with options expiry, first day notice and switching into future months taking place, it's nearly impossible to read anything into these numbers...including the o.i. numbers for the rest of this week...and I won't. These numbers, plus whatever happened in the debacle yesterday [if they're all reported] will be in this Friday's COT.

In his remarks yesterday, the usual N.Y. commentator had this to say..."The weekly ECB [European Central Bank] statement of condition indicated that 'gold and gold receivables' fell E116Mm last week, said to reflect the sale of gold by one captive CB and the "net purchase of gold coin by another." This is 8.3 tonnes at the current book value. Last week's total was 7.76 tonnes. On its face, an ECB bank has resumed sales--weekly sales amounts have been insignificant for some time. Of course, the amount is still below the 9.6 tonnes which would be notionally required to evenly fill the WAG2 quota, but there is nothing to stop a selling CB disposing of much more in a week if it chose." In a Reuters story filed from Johnnesburg..."South Africa's gold output fell by 13.6% in 2008, to its lowest level since 1922." And lastly...in another Reuters story from Chile was this comment..."Better known in global mining as the world's top copper producer, Chile is urging miners to look for gold...as prices for the precious metal flirt with record highs and buck a metals price slump." There were no changes in either GLD or SLV yesterday...and Comex warehouse silver stocks rose by about 560,000 troy ounces.

In other news, a Bloomberg story headlined "NYSE May Relax $1 Share Price Requirement to Prevent Delistings"...would "give a reprieve for the 133 companies whose average share price has dropped under $2...including Ford and AIG." Reuters...Prices of U.S. single-family homes plunged at a record pace in December...down 18.5% from a year earlier. PRNewswire...The Conference Board Consumer Confidence Index reached another record all-time low in February. And in a WSJ story, FDIC officals are pushing Congress to let it borrow up to $100 billion from the U.S. Treasury.

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Four stories today...with the biggest one first. In an essay published yesterday at counterpunch.org, former Assistant Treasury Secretary Paul Craig Roberts confirms that the U.S. government has been leasing gold to suppress its price and support the dollar. The admission is made in the last paragraph of the essay, which is entitled "Doomed by the Myths of Free Trade: How the Economy was Lost". The link is here.

The second story is a GATA release entitled "Futures market watchdog evades silver manipulation specifics". A CME [Chicago Merchantile Exchange] offical replies to Ted Butler's silver price manipulation accusations...but doesn't answer any of his questions. The link to the interview...and Ted Butler's reply...is here.

The next story, a fairly longish one from Wired Magazine, details how Wall Street and the world's financial centres were brought crashing down by a formula developed by another quant genius. It's a very good [though somewhat technical] discussion on the mathematical model that killed everyone's 401-k. If you're familiar with Long-Term Capital Management [and Roger Lowenstein's book on the subject] the essay sounds disturbingly similar to what happened to them back in 1998. The essay is entitled "Recipe for Disaster: The Formula That Killed Wall Street". I thank Aaron Krowne for sending it along. It's well worth the read, and the link is here.

And lastly...another essay on why the U.S.A. [and the world] should return to some sort of gold-backed currency. The essay [and it's long] was in the December issue of National Review. The authors are Mr. Lehrman and Mr. Meuller. They are principals of the financial-market consulting firm LBMC LLC. The piece is entitled "Go Forward to Gold: How to lift the reserve-currency curse" and the link is here.

Gold's worth is also determined by supply and demand and the desire of central banks to cap gold. - David Hirst, The Age, Melbourne, Australia...Wednesday, February 25, 2009

The Dow was 'saved' yesterday by a short-covering rally at the same time as the bullion banks pulled the rug out from under gold and silver prices. As I put this commentary to bed, I see that both precious metals have been under pressure from the get-go in the Far East...right throught the London open at 4:00 a.m. New York time as I write this. With 90% [or more] of all gold and silver trading done during New York hours, it wouldn't surprise me in the slightest if the bullion banks [read JPMorgan and HSBC USA] pulled their bids again this morning. I'd be delighted to be wrong...but that's the way it’s shaping up at the moment. It was ever thus.

See you tomorrow.