Gold sold off gently in thin Far East trading on Monday morning…and the bottom was in a couple of hours before Hong Kong closed. From there, gold rose until about 10:00 a.m. in London, and although it tacked on about another ten bucks during Comex trading in New York, it had given all that back by the Comex close.

As for the silver price, it bottomed at the same time as gold and was off to the races shortly after London opened. The top was was in shortly after 10:30 Eastern time when it appeared that the about-to-become-parabolic rally drew the attention of the boyz. From that point on, the silver price didn’t do too much.

As would be expected, volume in gold on the Comex Friday was pretty heavy; but somewhat lighter yesterday. In silver, volume was heavier yesterday than it was on Friday…which stands to reason when you consider the size of the price moves on those respective days.

In the open interest department, gold o.i. rose on Friday…up 3,068 contracts to 288,511 contracts. The increase is no surprise, but the size of the increase is. For a $57 dollar move, you would think that the o.i. should have been much higher. Ted Butler and I figure that “the Raptors” in the Commercial category of the COT were pitching some of their longs and taking profits. Some of that rally could have been shorts covering their positions as well. We’re both hoping that JPMorgan (NYSE:JPM) is not going short gold at the moment. The next COT will be issued on Monday (instead of Friday) because of the U.S. Thanksgiving holiday…and should be educational once it becomes available.

Silver open interest on Friday actually fell 1,501 contracts to 90,622. Like gold, there’s a possibility that Friday’s rally involved some short covering…and/or Raptor long liquidation. We’ll see.

Gold has now spent two days above its 50-day moving average. It will be interesting to see at what point the tech funds start showing up…and they are flush with cash right now…so they’ll be investing a lot. In silver, the price touched the 50-day moving average yesterday, but did not close over it…so we have to await developments once it does.

The rest of this week could be really interesting. Entities switching from the December ‘08 contracts to various months in 2009 in both gold and silver only have two business days left to get it done, because Thursday is a holiday and Friday is first day notice for delivery into the December contract in both metals. Open interest in both metals is still pretty high…92,000 in gold and 24,800 in silver. I expect Friday’s trading to be very light, as a lot of traders will have taken that day as a holiday. Will there be a surprise of some kind on Friday? Don’t know…but I’ll be watching developments with great interest.

Lots of gold news over the weekend…RIYADH, Nov. 23 (Reuters) – “Saudi Arabia’s gold sales rose 18 percent to 40.9 tonnes in the third quarter as the precious metal became a refuge in the world finance crisis, the World Gold Council said on Sunday…Sales rose in the United Arab Emirates by 22 percent to 32.7 tonnes and in Egypt by four percent to 22.2 tonnes, a report by the industry-funded group sent to Reuters said.” From news.com.au…”Australia is about to record its lowest annual gold production in 20 years. Gold production for the full 2008 year will be the lowest since 1989…somewhere between 25-30% lower than the peak year of 1997.” MUMBAI, Nov. 24 (Reuters) - India’s gold demand rose on Monday despite a sharp rise in prices as investors rushed for safe haven buying amid a fall in other asset classes, dealers said. “Retail demand has come down a bit, but demand from jewellers and investors are still strong,” said Madan Jain of Auro Gold Jewellery Pvt Ltd. I note that producer de-hedging slowed to 2.03 Moz in the Q3/08…down l1% from Q2/08. The total producer global hedge book now stands at 16.92 Moz…and the lion’s share of that belongs to Barrick and Anglogold Ashanti. I see in commentary posted over at Bill Murphy’s lemetropolecafe.com that the Russian Central Bank has added 1.6 Moz to its gold reserves in the last six months…400,000 ounces in October alone. As of the end of October, Russia now holds 16.3 Moz…500 tonnes. And lastly…the usual NY commentator had this to say yesterday…”The Gartman Letter disparaged the rally and went short at $808, with a 3% stop, a brave move.” (I wonder if this short play will fare any better than his last two long positions…neither of which lasted 48 hours. - Ed) Oops!!! One more thing. Ted Butler just informed me that (despite the run-up in prices) there were no changes in SLV (AMEX:SLV) or GLD (ANYSE:GLD) yesterday.

Because of the news over the weekend, I have three stories today. The first is from the BBC in London. It’s entitled “UBS loses favour with angry Swiss”. The elderly lady holding the sign printed in English, tells all. I thank B.G. for sending me the story…and the link is here.

The second is from The Wall Street Journal and is entitled “The Fed Is Out of Ammunition: A discredited dollar is a likely outcome of the current crisis.” In it he states, “In this respect the present crisis in the West will ultimately end up discrediting mechanical monetarism–and with it the fiat paper money system in general…the catalyst will be foreign creditors fleeing the dollar for gold.” The link is here.

The third story is from author Richard Duncan. His commentary was in Sunday’s Financial Times in London. The title…”Bring back the link between gold and the dollar”…says it all, and the link is here.

click to enlarge

I see that the US government ‘invested’ another $20B in Citigroup, and will cover hundreds of billions of dollars worth of “troubled assets”. The FDIC took over three other banks on the weekend. And I see in a Bloomberg headline that the “U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit”…”The pledges amounted to half the value of everything produced in the U.S.A. last year.”

BUY GOLD!!!!!

See you tomorrow.

Source: And Then There’s This…Tuesday, November 25th, 2008