Well, the big price spike that occurred at the open of trading in the New York Access Market at 6:00 p.m. on Monday evening turned out to be the high of the day for the Tuesday trading session. The first real selling pressure began at the London open, with a temporary bottom coming at 9:15 a.m. in New York.

The ensuing twenty-five dollar rally lasted until shortly after 11:00 a.m. Eastern, before the selling pressure showed up again. At 12:45 p.m. the seller disappeared...and a decent rally began that carried right into the thinly-traded electronic trading session after the Comex close.

Then, at precisely 2:00 p.m. a not-for-profit seller showed up...and by the time the bulk of the selling was in, gold got clocked for another forty bucks. The gold price finished down $68 on the day. Volume was monstrous.

It should come as no surprise to anyone that the real damage came in the silver market. From its $44.25 spike high on Monday night, until it's low tick around $41.50 in the thinly-traded New York Access Market yesterday afternoon...silver got smacked for about $2.75...although the closing price change only showed a decline of $1.84 spot.

The dollar opened at 74.15 in early Far East trading on Tuesday morning...and fell all the way down to 73.60 by around lunchtime in London, before rallying back to close just under the 74.00 cent mark. The dollar's movements played no part in yesterday's precious metals price gyrations.

The gold stocks got hit pretty hard, but considering the hit to the metal itself, the loses weren't all that bad...and the HUI finished well of its low...down 3.55%. It could have been worse.

And despite the pounding that silver took yesterday, the associated equities were very sanguine about it...and Nick Laird's Silver Sentiment Index finished down an rather insignificant 1.76%. I was impressed.

(Click on image to enlarge)

The CME's Daily Delivery Report showed that 375 gold, along with 69 silver contracts, were posted for delivery on Thursday. In gold, the big short/issuer was JPMorgan in their proprietary trading account...and the big receiver/stopper was Goldman Sachs. In silver, the big short/issuer was Jefferies once again...and the big stopper was JPMorgan in their client account. The numbers are worth a look...and the link is here.

There was a huge withdrawal from GLD yesterday...down 798,417 troy ounces...and the SLV had a monster deposit of 4,286,172 ounces. That's a large part of what the ETF is probably owed from last week and Monday. As I mentioned in yesterday's column, it will be interesting to see what the short positions are for GLD and SLV when they're reported later this week...especially after yesterday's price action.

The Comex-approved depositories took in 16,302 troy ounces of silver on Monday...and shipped 302,913 ounces out the door. The link to that action is here.

Here's another interesting e-mail from German reader Patricia Ritz about the physical tightness in silver..."I would confirm what your U.K. reader said about the tight physical silver supply. Last week we went to our local Hamburg Bank, HASPA, where we have been buying gold and silver for the past few years. We bought everything they had, which included bars and new coins...about 20,000 Euros worth...as they said that they didn't know when they could get any more. The mints were all working with gold and not providing any silver to the markets, the ratio of gold to silver purchases being about 10:1. They were hoping to get more silver in a few weeks but couldn't promise it."

"It was great meeting you in London on the last day of the GATA conference. As always looking forward to reading your reports each afternoon here."

Here's an interesting Bloomberg chart that was sent to me by Washington state reader S.A. It shows the quiet rise in the overnight inter-bank lending rate. The chart only covers a couple of months, so you can see that the counterparty risk level is starting to creep up as the summer winds down.

(Click on image to enlarge)

¤ Critical Reads

Bank of America's share nosedive fuels fears of a second credit crunch

Bank of America continued its tailspin on Tuesday as shares in the largest US bank tumbled by another 6.4% to their lowest level since March 2009, fuelling fears of a second banking crisis.

As concerns mounted that BoA will need to take huge additional write-offs on bad mortgages, the cost of insuring the group's debt jumped to record levels and investors became increasingly concerned that the financial system could be facing a fresh credit crunch.

And, dear reader, if you check Citigroup's stock...it's not in much better shape, either.

I thank Swiss reader G.B. for sending me this story out of The Guardian late last night...and the link is here.

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First in Line for New Money

The world of high finance was still in full flight in February 2007. The cracks in the mortgage market had not yet begun to show and Stephen Schwarzman's Blackstone Group had just completed its $39 billion purchase of Equity Office Properties in what was the largest leveraged buyout ever.

There was plenty to celebrate, so Schwarzman threw himself a party for his 60th birthday, a 3 million dollar affair for 350 of the billionaire's closest friends, including Barbara Walters, CNBC money honey Maria Bartiromo, the Donald, Cardinal Edward Egan, and former New York governor George Pataki.

It was lobster, filet mignon, and baked Alaska for everyone, washed down with expensive vino, with comedian Martin Short as emcee. Composer-pianist Marvin Hamlisch played a number from A Chorus Line. Patti LaBelle sang a song written for the birthday boy, and Rod Stewart sang a medley of his hits, reportedly for a fee of a million dollars.

This Doug French piece posted over at mises.org is a bit of a read, but well worth it in my opinion. I thank Australian reader Wesley Legrand for sending it along...and the link is here.

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Bundesbank questions legality of EU bail-outs

Germany's Bundesbank has issued a blistering critique of EU bail-out policies, warning that the eurozone is drifting towards a debt union without "democratic legitimacy" or treaty backing.

"The latest agreements mean that far-reaching extra risks will be shifted to those countries providing help and to their taxpayers, and entail a large step towards a pooling of risks from particular EMU states with unsound public finances," said the bank's August report.

Here's Ambrose Evans-Pritchard up on his high horse over at The Telegraph once again...and I thank Roy Stephens for this story. The link is here.

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Debating the Common Currency: 'Euro Bonds Would Destroy the Euro'

Many in Europe would like to see the introduction of euro bonds to help indebted euro-zone member states borrow money on international markets. Germany, however, has refused. SPIEGEL listens in as two top German economists debate the issue.

These two economists really go at it. This spiegel.de piece from yesterday is also courtesy of reader Roy Stephens...and the link is here.

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Dr. Dave Janda interviews your humble scribe

On Sunday afternoon just past, I had the pleasure of doing a 30-minute radio show with Dr. Dave Janda over at WAAM 1600 in Ann Arbor, Michigan. For those of you with some time on your hands, the link to the interview is here.

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German Minister Demands Gold Collateral For Future Bailouts

German Labor Minister and CDU deputy president Ursula von der Leyen said that future bailouts in eurozone countries should be covered by gold reserves or industry stakes, according to a Reuters report.

This is the newest development in the debate over whether collateral should be offered to nations contributing to the Greek bailout.

It remains to be seen if this idea goes anywhere.

This is a short read posted over at the businessinsider.com website...and I thank reader Norbert Wangnick for sharing it with us. The link is here.

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ETF in Focus: GDX

Scott Pluschau, a frequent contributor to this column, has posted a short 2-page piece on the Gold Miners ETF. It's posted over at thestreet.com...and if this sort of thing interests you, the link is here.

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Is a Fear-Driven Gold Mania Here?

Yesterday's edition of Casey's Daily Dispatch contained a commentary by BIG GOLD editor Jeff Clark...and it's headlined "The Fear Mania". It's a short read that I know you will find interesting...and you'll have to scroll down a bit to get to it. The link is here.

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Important Price Targets to Look For in Gold - Robin Griffiths

Here's a short blog that's posted over at King World News. Robin Griffiths is one of the top strategists at Cazenove Capital. Robin has some interesting price targets...and I'm not going to disagree with any of them. The link is here.

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Gold unlikely to be sold to ease sovereign debt, Morgan Stanley economist says

Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

"Once they've sold, that's it, and buying back would be extremely expensive," said Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., who has studied metals markets for 20 years. "They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt."

This is a Bloomberg story that was posted in the wee hours of this morning from New York. I stole it from a GATA release...and the link is here.

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Vietnam tries to cope with new bout of gold fever

For the Vietnamese government, what's at stake in trying to get citizens to stop investing just in gold is an important piece of Vietnam's economic stability puzzle.

Economists widely see gold as a currency in Vietnam. Last year, the Asian Development Bank said Vietnamese hold more gold per dollar of income than anyone else in the world, which underlies the lack of confidence in the dong.

Former State Bank of Vietnam governor Cao Si Kiem said that while the central bank has estimated the populace has 573 tonnes of gold, the total might be 1,000 tonnes.

This very interesting Reuters piece is a must read...and it's another piece that I stole from a GATA release. The link is here.

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At least Vietnam does its gold market rigging openly

Here's another story I 'borrowed' from a GATA release late last night.

Vietnam's central bank has authorised at least one domestic firm to import more gold to help cool soaring prices and state-run newspapers said it may open the market to unlimited imports to narrow the gap between local and world quotes.

Central bank officials, including Governor Nguyen Van Binh, could not be reached for an immediate comment, but sources with knowledge of a meeting between Binh and senior editors on Tuesday morning to discuss gold-related policies said the issue of allowing unlimited imports did not come up.

This is another Reuters piece that's headlined "Vietnam to Allow Gold Imports to Cool Local Prices". It, too, is well worth the read...especially the last paragraph...and the link is here.

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Kazakhstan, big gold producer, to keep its metal home starting January 1st.

Kazakhstan's central bank plans to lock up domestic supplies of refined gold by using a "priority right" it received from the government to buy bullion designated for exports amid record prices for the metal.

The National Bank of Kazakhstan plans to use the buying privilege "in full" after changes go into effect Jan. 1, the Almaty-based lender said in an e-mailed statement today.

This is just another brick in the wall for the world's bullion banks. This Bloomberg story was posted in another GATA release yesterday evening. It, too, is a must read...and the link is here.

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Chavez expects gold to be back in Venezuela in 'weeks'

Venezuelan President Hugo Chavez signed into law Tuesday the official nationalization of the country's gold mining industry and announced the impending arrival of the first shipment of repatriated gold.

Chavez signed the "natural law that reserves the exploration and management of gold, as well as the connected activities, to the state" during a ministerial meeting broadcast by state media.

This AFP story headlined "Chavez officially nationalizes Venezuela's gold industry" was picked up by google.com...and is another borrowed story from a GATA release...and the link is here.

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Venezuela's move will deleverage gold market, Rickards tells King World News

Eric King sent me this story early on Tuesday morning, but I just couldn't find the room for it in my column yesterday, so here it is today.

Geopolitical analyst Jim Rickards, who spoke at GATA's London conference this month, told King World News on Monday that Venezuela's withdrawal of gold from the Western banking system isn't fully appreciated yet. It likely means a painful deleveraging of the gold market, Rickards says, as the bullion banks to which the gold has been leased try to recover it.

I've listened to this interview...and it's well worth your time. The link is here.

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This Currency, as we manage it, is a wonderful machine. It performs its Office when we issue it; it pays and clothes Troops, and provides Victuals and Ammunition; and when we are obliged to issue a Quantity excessive, it pays itself off by Depreciation. - Benjamin Franklin

As I mentioned at the top of this column, gold's net volume yesterday was beyond monstrous, as a staggering 388,000 contracts were traded. The preliminary open interest number was up a huge 21,684 contracts...which is surprising considering the big decline in price. The final open interest number will be greatly reduced when it's posted later this a.m...and all of this will be in Friday's Commitment of Traders Report, as yesterday was the cut-off for it.

Monday's final open interest number in gold showed an open interest increase of 10,414 contracts...which was much reduced from the 24,000+ preliminary number, but still not terrific.

Silver's net volume yesterday was a very chunky 57,000 contracts, so it's obvious that the high frequency traders are back in this market once again. The preliminary open interest number showed an increase of 4,661 contracts, which is also a big surprise considering the price action. The final o.i. number should tell us more...but the COT report on Friday will tell all...and I'm sure happy that yesterday's trading action will be part of it.

Silver's final open interest number for the Monday trading day showed a decline of 861 contract, which wasn't a surprise considering the tiny preliminary number, which was in the +1,200 contract range.

What did surprise me about Tuesday's preliminary open interest numbers in silver was that the September contract actually showed an increase of 1,697 contracts. Normally, the o.i. would be showing big declines as we approach the September delivery month. Maybe that will 'adjusted' when the final number is reported by the CME later this morning.

One thing that won't be in Friday's COT report is the big price declines in both gold and silver that occurred after the close of Comex trading in New York at 1:30 p.m. on Tuesday afternoon...as that was past the cut-off time.

Here's the 6-month gold chart. You can see that the RSI took a big drop.

(Click on image to enlarge)

And here's the matching 6-month silver chart...and it shows the same big decline in RSI.

(Click on image to enlarge)

The big question now is how low will prices go...and how long will it take to get there. As silver analyst Ted Butler has pointed out time and time again...a lot of what's been happening has been short covering...and that's what drove the rally last week in gold...and the price decline in silver. It remains to be seen what drove the price from the previous Tuesday's cut-off...and that's why both Ted and I are looking forward to what this Friday's COT report has to say.

Once the last leveraged long tosses in the towel, then the price bottom will be in, in both metals. We'll just have to wait it out. As I said, it's just the timeline and the severity of the sell-off that are the big unknowns.

During Wednesday trading in the Far East, gold rose nicely in the early going, but then got sold off a bit. Now that London is open, gold is up about $18 as I write this...and the selling pressure that was visible all through Far East and London trading on Tuesday morning, is nowhere to be found...at least not as of this writing at 3:48 a.m. Eastern time. Volume is already extremely high.

Silver basically followed the same type of price path as gold, but spent part of the afternoon session in Hong Kong in slightly negative territory, although the price is back in the black after an hour of trading has gone by in London. Volume, net of all roll-overs out of the September contract, was pretty light.

For the most part, it was pretty quiet all night long in gold and silver, but I'm sure the bullion banks are still lurking out there somewhere...and it will only be a matter of time before they show up again during the Wednesday trading session...whether it be later in the morning in London...or when the Comex opens at 8:20 a.m. Eastern time this morning.

See you on Thursday.