Both gold and silver had smallish rallies starting with the open of Globex trading in the Far East on Wednesday. However, all was for naught, because part of the price gains were sold off on the Comex open…and the rest once London had closed for the day.

With the price of both metals well below all the major moving averages, and all the tech funds already blown out of their long positions, there wasn’t a lot of volume yesterday…and it was easy to keep the prices under control…and they were. We could sit at this price level for quite some time until the moving averages tell the tech funds its time to put a toe back in the market. This could take a while…certainly a few weeks. Then, once next rally begins, we’ll find out pretty quick if the bullion banks are going to go short against the tech funds again.

Gold open interest fell 9,104 contracts, so there was obviously liquidation on Tuesday. In silver, open interest rose again…for the second day in a row! This time o.i. was up 1,123 contracts. This is preposterous, as the silver price has fallen over a dollar since Monday. However, I did not consider the possibility that the tech funds may have not only pitched all their longs…but are now putting on fresh short positions…an action which also causes o.i. to increase. This is something they haven’t done for ages, so it never really crossed my mind. Let’s hope that the COT report tomorrow sheds some light on this, as the o.i. numbers I’ve been seeing over the last week are absurd.

The usual NY gold commentator observed the shorting possibility before I did, but I admit that on Monday it didn’t seem possible…and I’m only acknowledging it now…because it might have happened I suppose. “Mondays forcing down of gold in NY was clearly short selling, as open interest rose 8,162 lots (25.4 tonnes) on a Comex price decline of $9.60. Tuesdays $21.80 drop did find some liquidation: open interest fell 9,104 lots (28.3 tonnes). Net, Comex gold dropped $31.40 in two days but shed only 942 lots. Considering the technical damage as well, this is odd and suggests considerable shorting.

“On Tuesday, the ECB’s weekly condition statement indicated one captive CB (central bank) sold gold, while another bought some for coin purposes. Net, the sale was E26 million or 1.37 tonnes. Last weeks sale appeared to be 1.49 tonnes. The ECB, it would seem, does not want to appear involved in gold at present.

“India’s gold buying public is absolutely indifferent to US$ technical considerations, but does respond to the rupee gold price. With the season swinging positive and a strong rupee as well, a serious bear trap could be in place.”

The first story today is about the real estate market…again. However, this is not about the American or British real estate markets…it’s about Spain’s. The situation there…and in most of the other EU countries bordering the Mediterranean…is just as bad as what’s happening in the USA. As I’ve said before, the real estate crash will be world wide…and this is another brick in the wall. The Bloomberg headline reads “Pain in Spain Falls Mainly on Trichet with Toxic Debt”. The link is here.

The second story is a thriller. The NYMEX/COMEX/CFTC have all tried to keep this story out of the public press, but failed after a report came out from the Royal Bank of Scotland (LON:RBS) that forced them to go public. Ted Butler was the first person to write about this ten days ago in his essay entitled “Coincidence or Confirmation?”…and most of the facts Ted spoke of, showed up in the RBS report. If you want to refresh your memory, the link is here. The confirming story showed up in a Reuters press release entitled “Big CFTC data revision raises oil traders’ eyebrows”. This one trader made such a huge impact in oil pricing that the CFTC is changing the last 12 months of COT data! This is unprecedented!!! One very savvy market commentator had this to say…”This is the tip, albeit a large tip, of the iceberg of CFTC incompetence and NYMEX malfeasance.” As you read this, please entertain the idea that this might be what’s going on in the Commercial category of the Commitment of Traders for gold and silver as well. I will endeavour to track down the RBS report. Meanwhile, the (very skinny) Reuters story is linked here.

The more corrupt the state, the more numerous the laws. – Publius Cornelius Tacitus, Senator of Rome

The three-ring circus the equity and financial market have become is not worth writing about any more. My bet is that unless the boyz have some sort of new trick up their sleeves, the bottom for the precious metals was Tuesday…but we still have to concern ourselves with options expiry on August 26th. So we’ll just have to sit…wait for time to pass…and keep our fingers crossed.

See you on Friday.

Source: And Then There’s This…Thursday, August 7th, 2008