This one started in the Far East early in their trading day yesterday and ended at 4:00 p.m. New York time. Silver didn’t fare much better, but it did try to rally a couple of times during New York trading hours on the Globex…but the boys were having none of that.

All of the above was helped along by the US$ ‘rally’ and the drop in oil prices.

Even though both gold and silver showed small increases in price on Monday, the open interest in gold was down 1,317 contracts…and silver o.i. dropped a smallish 102 contracts. Volume was pretty heavy on Tuesday with first day notice for May deliveries being today. If they report the o.i. numbers like they’re supposed to, Tuesday’s activity should be interesting. We’ll also hear about interest rates following the FOMC meeting as well.

How long can the ‘8 or less’ traders keep this up, is an open question. They don’t seem to have liquidated a lot of contacts in this latest take-down that started a couple of weeks ago, as the total open interest hasn’t gone down very much. Normally, there would be huge liquidation, but the numbers don’t back that up. It’s obvious that someone is providing physical gold to this market…and in size. It could be from the ECB…or maybe it’s all coming from the GLD ETF, as another 11 tonnes got sold out of it yesterday, bringing the total to more than 60 tonnes in the last week or so. As of yesterday, SLV…the silver ETF…hadn’t sold a single ounce.

The GATA gang have never been fans of the gold and silver ETFs, as we believe that Barclays is one of the “8 or less” traders…as are JPMorgan and HSBC USA…their primary bullion custodians. James Turk over at goldmoney.com is highly critical of the prospectus for both ETFs.

I see in Bill Murphy’s MIDAS commentary over at lemetropolecafe.com that a serious long-time observer of the Middle East/Far East bullion markets has noted that there are rumours circulating of “abrupt and objectively unwarranted contractions of credit lines in the physical bullion trade: some say precipitated by American banks. These stories come from Turkey to India.” When I asked him to clarify this, he said…”Direct efforts to restrain gold buying by the Middle East…which fears, probably correctly, some kind of US action on Iran.”

In other news, I was reading Doug Noland’s latest CBB over at prudentbear.com, and he had this to say about today’s current credit/financial situation…” I am, at this point, more convinced than ever that only a severe crisis will instigate the necessary adjustment to the distorted and imbalanced U.S. and global economies. One is then left with the disconcerting view that Stage II (of the current financial crisis) will lead our authorities to exhaust all policy measures in a futile attempt to sustain the unsustainable. The obvious question: how long does the lead up to Crisis Stage II last? I would today guess a number of months, although I wouldn’t at all be surprised if it was rather short. What will be the impetus for Crisis Stage II? A spike in interest rates, a run from U.S. Treasury and agency debt, a disorderly drop in the dollar, another bout of derivative and Credit market implosion, or acute global financial tumult should be considered leading candidates based upon Stage II ramifications. Or it could easily be something completely unexpected, perhaps even war.”

That’s the first time I’ve ever seen the ‘war’ word show in any of Doug’s writings.

A couple of stories today…the first being silver analyst Ted Butler’s latest commentary entitled “An Interesting Week”. The link is here.

The second story is about this wonderful new oil discovery off the coast of Brazil that everyone has been talking about…the one that will save the world. The following Bloomberg story throws a little ice water on that idea. The title of the article is “Brazil Oil Trapped by 500-Degree Heat, Salt Barrier” and is linked here.

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists. – Ernest Hemmingway

It’s pointless to discuss the firestorm of never-ending bad news that keeps pounding away at us with the dawn of every new day. Besides which, it doesn’t matter at the moment, as Paulson & Co. are there to make sure that “everything is fine” regardless of what happens. Today is the last day that the Wall Street boys have to ‘mark ‘em up’ for month end. The interest rate news may not be what the markets (both equity and bond) are looking for…so blow the froth off a cool one (even if it’s a little early in the day) and let’s see what happens.

Talk to you tomorrow.

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