Gold didn’t do much of anything on Wednesday until well into the trading day in London.

A small rally ensued that continued into early New York trading on the Comex, but got capped…for the third day running…at 9:00 a.m. New York Time. From there, it got sold off gently for the rest of the day and into early trading in the Far East today.

Silver suffered the same fate, but managed to rally back into positive territory for the second day in a row…but was capped before it could get anywhere near its 20-day moving average, which is $17.14.

It’s still an open question whether the boys will try to take out the 200-day moving averages on this cycle, or have they already collected all the tech longs they can? I wouldn’t like to see it happen, because of the psychological damage it would do, but if the bullion banks want to do it…they can. Time will tell. Everyone talks about the ’summer doldrums’ in the precious metals. As you can see, there are forces out there that contribute to it.

Not surprisingly, gold open interest on Tuesday fell 5,490 contracts on the $17 swan dive in the gold price…and with silver squeezing out a few pennies of gain, o.i. rose 120 contracts. It would be wonderful if this gold o.i drop was in the COT tomorrow, as there has been huge liquidation since the Memorial Day long weekend…none of which was in last week’s report.

In the Bill King Report last night, there was the following comment…”At the end of 2007 the eight largest banks/brokers had over $500B of Level 3 assets, which represented over 90% of their capital. The amount of Level 3 (Mark to Myth) assets has increased in 2008.” This “Level 3″ debt isn’t worth much. Check out the ABX chart. For the first time, some of these “assets”…if you wish to dignify them with that name…are now worth less than a nickel on the dollar. The chart is here.

I have three stories today. The first is a short one about oil…and some comments that T. Boone Pickens had about the CFTC investigation into crude oil “manipulation” by “speculators”. The Bloomberg link is here.

The second story is about the Fed’s Treasury Auction Facility. As of May 1st, they are providing $150 billion/month in short-term loans to banks and brokerage firms to prevent a total melt-down. Their latest auction for a $75B tranch received 71 bids for $96.62B! From this, it’s easy to see how solid the US financial system really is…LOL! The link is here.

In another sure sign that all is not well, here is a story from The Telegraph in London entitled “Banks’ credit crisis solutions have echoes of 1929 Depression.” The link is here.

“I am enclosing two tickets to the first night of my new play; bring a friend…if you have one.” – George Bernard Shaw to Winston Churchill…followed by Churchill’s response: “Cannot possibly attend first night, will attend second…if there is one.”

Let’s see…Lehman was raising capital on Monday, and was rumored to be buying its own shares on Tuesday trying to support its stock price. Bernanke says that inflation is “significantly higher” than the Fed wants. And lastly, Moody’s has put Ambac’s Aaa credit rating up for review…after their stock has fallen from $95 to $2.50. Everything is fine.

See you on Friday.

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

Source: And Then There’s This…Thursday, June 5th, 2008