The clean out of the tech fund’s long positions continues, as the activity on Tuesday was virtually a carbon copy of what happened on Monday. Both gold and silver closed on their lows of the day and decisively below their respective 200-day moving averages.

Since the start of the week, gold has lost $40 and silver is down $1.15. These losses have nothing to do with changes in supply or demand, as 90% of the the time the price is determined by what is happening between the tech funds in the Non-Commercial category, and the bullion banks in the Commercial category. The interplay between these two groups of traders determines the price…it’s as simple as that. If the tech funds are buying and the bullion banks are going short against them…the price rises. If the tech funds are pitching their longs and the bullion banks are covering their shorts, the price declines. It’s as simple as that. Virtually nothing else matters.

This clean out that we are having right now is identical to the many that we’ve had in the past, and all have involved the same participants. When the bullion banks have flushed as many longs as they think they’re going to get, then the bottom will be in…and we’re close now.

As Ted said to me on the phone today…”most of the damage has been done–but has all the damage the boyz can do, been done?” Good question. As I said in my interview with Al Korelin on the weekend, sometime before the end of August (options expiry is on the 26th) the bottom will be in.

The shares got smashed again. It’s obvious that a lot of gold bugs…or pseudo gold bugs…have exceeded their pain thresholds and chucked everything. Ted Butler has always said that before the bullion banks let the prices go, the last take down (if this is it) would be ugly. He was right. I also mentioned to Al Korelin that I would wait until I saw how things turned out this week before investing a dollar. Now that I’ve seen it…it’s the time to commit…now that there’s blood in the streets. Sure, we may spend a little time below the 200-day moving averages. But if it were me…I’d be buying now.

I’ve always been a buy-and-hold type of investor…which has not stood me in good stead in this precious metals market. I expect that I will be taking a significant chunk of my money off the table when we get to the top of this next leg up…which should be quite spectacular.

Monday’s open interest in both metals made no sense whatsoever. Gold o.i. rose 8,162 contracts and silver o.i. was also up…875 contracts. There should have been massive liquidation in both metals by the tech fund in the Non-Commercial category. There probably was, but it was masked by either a large number of new spreads being put on…or by the bullion banks going long in a big way instead of covering their shorts. Both of these actions raise open interest…and is the only explanation that fits. Hopefully it will be in the Commitment of Traders report on Friday. Cut-off for that report was at the close of trading yesterday. We can only cross our fingers and hope that this carnage will show up the day after tomorrow.

In the news highlights, I see that Pemex has announced that their Cantarell oil field will be down to one million barrels of daily production by the end of 2008. In an MSNBC story, Ecuador has announced that the U.S. military must stop using Manta Air Base…its only outpost in South America…for anti-drug flights when the lease expires in 2009. The U.S. says they will respect Ecuador’s decision. Let’s see what Uncle Sam does once expiry date looms large. And in several stories yesterday, the talk is now on about the U.S. government having to bail out GM, Ford and Chrysler

With the sub-prime mortgage debacle in the news over the last year, it’s hard to believe that it will get worse. But it will…and is already. The first story is from The New York Times. The headlines reads: “Housing Lenders Fear Bigger Wave of Loan Defaults”. Alt-A mortgages are now in the cross hairs. The link is here.

While I’m talking about Alt-A mortgages, here’s another story that fits like a hand in a glove with the previous one. “Mr. Mortgage”…posting at ml-implode.com…has the deep background on the Alt-A mess. The headline reads “Moody’s & Fitch Join S&P in Massive Alt-A RMBS Downgrade Avalanche”. RMBS stands for Residential Mortgage Backed Securities. “Mr. Mortgage” says “it could make the ’subprime implosion’ look like a walk in the park.” As I’ve said before, call me in 2013 and then we’ll talk about a real estate bottom. The link is here.

The record amount of fixes have rendered the concepts of ‘freely traded markets’, ‘moral hazard’ and ‘market capitalism’ as fantasies. Solons are fighting for the life of the political and financial systems. – Bill King, August 5, 2008

The FOMC meeting decided nothing except that interest rates are not going up. There was a Bloomberg story yesterday about someone wanting the Fed Funds rate cut to 1%. Do I here zero percent anywhere? This is all so bizarre. Those who said that truth was stranger than fiction were absolutely right, as you couldn’t make this stuff up.

All of us Casey’s Daily Resource Plu will see you on Thursday.

Source: And Then There’s This Wednesday August 6, 2008