From Ed Steer:

From the Globex open in New York on Wednesday night...and until 3:00 a.m. New York time [4 p.m. Thursday afternoon in Hong Kong trading], gold added about five dollars or so to its price. As I've mentioned many times in the past, this is often a time when there are changes in market direction. Thursday was no exception. From there, gold sold off quietly until about 10:40 a.m. in New York. This selling effect was especially pronounced in silver, where it sold off about 32 cents over the same period of time.

Then from 10:40 a.m. New York time, until shortly after 2:00 p.m...both gold and silver put on quite a show to the upside. From their lows, gold tacked on a little over $18...and silver around 43 cents. Then, from about 2:15 p.m., both metals flat-lined and have done virtually nothing since. Gold volume yesterday was estimated to have been 158,056 lots...including switches. That's quite a bit.

The HUI reacted predictably to the gold and silver price declines and sold off rather heavily once the equity markets began trading at 9:30 in New York. However, once the metal prices began their upside moves, the stocks recovered...but I was not overly impressed with the fact that such large price moves only resulted in a 1.55% increase in the HUI. I suppose, considering the overall rout in the general equity markets, that I should have been thankful for small mercies, but the 3-year HUI chart does make me stand up and take notice. The RSI is now at an even 70.0...and even though neither gold nor silver are in overbought territory themselves, they are close. What happens [price action wise] in the next few days is worth keeping an eye on...especially as it relates to the HUI...as the HUI rarely gets above 70 without some sort of correction. So be on your guard here.

click to enlarge

Wednesday's nice price rise in gold resulted in a huge increase in open interest...as o.i. rose 12,005 contracts to 379,936...on the back of 178,209 contracts traded. Ted Butler and I were not amused. It's obvious to us [and, by now, should be equally obvious to you] that as the tech and small trader longs pour in and drive the price up, it's the U.S. bullion banks that are taking all the short positions against them. Wednesday's rally was nothing compared to the rally we experienced yesterday, so I'm expecting an even bigger deterioration in gold open interest when the numbers become available later this morning. The warning flags in gold are now flying high. Silver, on the other hand, showed a 360 contract decline in open interest to 95,719 contracts. Volume was a very respectable 19,818. I'm expecting a big deterioration in silver o.i. when that number becomes available as well.

Not a lot of silver and gold news yesterday. The Comex delivered 60 gold contracts and 14 silver contracts. There were no changes at the U.S. Mint or in silver stocks at the Comex-approved warehouses. Neither were there any changes in GLD or SLV...although after the last three or four days, these ETFs should be owed some pretty big amounts...especially in silver. Ted says that the boyz may engineer a price drop just so they can get out of their obligations to deliver physical metal to the ETFs. This is entirely plausible, as the ETFs are forced to short their own shares if they do not have the metal to deliver right away. Since the custodians are JPMorgan in silver...and HSBC in gold...and since these guys are the ringleaders of the gold cartel...it's no problem for them to arrange that. They've done it before, and they can do it again...and probably will. That's why Ted and I are [as I've said before] as nervous as two long-tailed cats in a room full of rocking chairs, about the huge deterioration in the COT report and the share price action. We could still rise in price from here in both metals...but if we did, then we'd be way overbought in the metals too...along with the HUI. Then there's no question in my mind that the gold cartel, seeing all the mice in the trap that they could get, would pull the lever and ring the cash register. As I've said since I got back from holidays...it's the "same old, same old" routine. Could they get overrun? Sure...but if they do, it will be for the very first time.

I've got quite a few stories today...and I hope you find some of them of interest. The first is from The Guardian in England. In a story filed from San Francisco is this headline..."GPS system 'close to breakdown': Network of satellites could begin to fail as early as 2010". I thank Craig McCarty for the story, and the link is here.

The next story is from Lloyd's List...which is probably Lloyd's of London. The headline reads..."Half of all listed shipping companies may go bust". "The grim assessment was issued by Paul Slater, chairman and chief executive of First International, who forecast that the next 12 months would be ‘really painful’ for the three main shipping sectors of containerships, dry bulk and tankers." I thank Donna B. for sending me this story, and the link is here.

Here is another offering courtesy of Craig McCarty. It's a Bloomberg piece entitled "U.K. May Lose AAA Rating at S&P as Finances Weaken". "Britain would become the fifth western European Union nation to lose its rating because of the economic slump, following Ireland, Greece, Portugal and Spain." In commentary yesterday, PIMCO's Bill Gross said that a U.S.A. credit rating downgrade was "inevitable, but not imminent". With the US$ falling...and bond rates rising...the USA's AAA rating has already been downgraded by the market. Nobody is waiting for the offical word from S&P before reacting. The link is here.

In another Bloomberg story that dove-tails with the last piece, is this no-holds-barred commentary by one of their own columnists, Mark Gilbert. The heading pretty much says it all..."Dollar is Dirt, Treasuries Are Toast, AAA Is Gone". Not too many shades of gray in this...and the link is here.

And lastly is another Bloomberg story. This could have spooked the bond market and the US$ as much as anything else yesterday. The piece is entitled "Fed Officials Raised Prospect of More Bond Purchases". In the minutes of the April 28-29 FOMC meeting, the following comment was noted..."Members also agreed that it would be appropriate to continue making purchases in the total amount of $1.75 trillion previously announced." Wow! I had no idea they were considering monetizing that much debt. It's my opinion that before this depression is behind us, they will probably have to monetize a lot more than that. I thank one of my readers, Richard Benkert, for sending me the story. The link is here.

I haven't had a decent cartoon for a long time, so I thought I'd include a photo taken in the screaming hot days of January in Australia. How hot was it? Well...click on the photo below and find out. I thank reader Paul Bowman for sending it along.

click to enlarge

There is all the difference in the world between treating people equally and attempting to make them equal. - F.A. Hayek

I note, as I fire this off to my editor, that the London gold market has been open for an hour or so, and silver is down a dime...and gold a few bucks. I wonder what kind of battle we'll see today? Both metals [and the HUI] are getting a hair overbought, but overbought conditions can last for quite a while...just like oversold conditions can. With the long weekend almost upon us, it could be an interesting day in the Comex gold and silver pits in New York.

I wish all my American readers a safe and happy Memorial Day long weekend...and I'll see you on Saturday.

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