ed steer of casey research discusses yesterday's sharp sell off in gold (and silver, the metal they were really after)

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.

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