Gold and silver were range bound throughout trading in the Far East early Tuesday morning. But all that changed the moment that London opened…as both metals came under increasing pressure as the trading day moved along in Europe.

The selling pressure intensified further when the Comex opened in New York… and as usual, the bottom for both metals was in at the London p.m. fix. Silver had a nice bounce after that, but gold did not recover…but it didn’t close on its lows either.

Without a doubt, there was pretty good short covering in both metals on Tuesday. However, I must admit that I was taken aback by yesterday’s smack-down…as the boyz haven’t resorted to this tactic (continuing their down-side attack on gold and silver after options expiry) for quite some time. But, as I said yesterday, the bullion banks hadn’t covered many of their short positions during this last price rout, so maybe they were trying to make up for it now. However, there were other things that happened in the markets yesterday that may explain their actions, and I’ll get to that later.

Cut-off for this Friday’s Commitment of Traders was yesterday, so if everything got reported, then Tuesday’s activity should be in there as well. One can only hope.

Gold open interest for Monday fell an astonishing 15,599 contracts. A lot of this is obviously options expiry related, but first day notice for delivery is tomorrow…and it’s also the end of the month, so there will be lots of book squaring between now and then…all of which will be in the COT on August 8th. As for silver, not much happened as far as o.i. goes on Monday…silver o.i. rose 123 contracts…which is somewhat counterintuitive considering what happened with gold’s o.i.

The usual NY gold commentator had this to say about Monday’s and Tuesday’s trading…”The ECB weekly statement of condition indicated a sale of E600Mm of gold, ostensibly last week. In fact the bulk of this was doubtless the 30 tonnes the ECB itself reported on June 30th as having sold previously. The arithmetic is complicated by the June 30th book value change for gold: but it appears 1.49 tonnes is the amount actually “sold” last week. The detailed accounts show a fall of only E578Mm of gold due to “transactions”. Recently, ECB reporting has become sloppy.

“Monday’s +90c in Comex (AMEX:IAU) gold saw a startling 15,599 lot (48.51 tonne) drop in open interest. It is frankly difficult to know what to make of this – except that, as remarked yesterday, any day with 200,000 lots trading outright cannot accurately be described as “quiet”.

“Today’s (Tuesday’s) savage beating of gold, starting in the early European day, is of course precisely what has come to be expected on a day of bad financial structure news: of some interest is that all the damage was done by 10 am NY time. A huge 242,301 lots were estimated to have traded by the floor close: almost 75% by 10 am. The switch effect was only 30,000. What kind of profit-maximizing trader would behave like this?

“Amazingly, it appears the Gartman Letter’s E584 stop has survived.”

It is difficult to talk objectively about what’s going on in the marketplace right now. Monday night’s revelations by MER should have cratered the markets…and the US$…and put a real bid under gold and silver. Of course, it was exactly the opposite that happened. I know for a fact that the boyz spun the futures positive during the wee hours of Tuesday morning, ramped the dollar and stepped on gold and silver. All the spin on the major financial networks was how positive the MER news was. There is another word for this kind of reporting, and it’s called propaganda. The Soviets were great at it. So were the Nazis. I call it lying!

That leads nicely into my first story. Actually it’s a Keith Olbermann video. He (and Chris Mathews) really nail Scott McClellan to the wall. The seven minute video is entitled “Fox News Busted”. The link is here.

The second article is another currency debasement story camouflaged under the “Joe Six-Pack” label of inflation. It’s a Yahoo story entitled “As costs rise, inflation’s next front is retailers”.

The link is here.

Merrill providing financing for the deal suggests that the true value of the assets is quite a bit less…until the true value and the ‘mark to model’ converge, it’s going to be difficult for investors to have confidence in anything Wall Street management says. - Julian Mann, First Pacific Advisors LLC

Well, the boyz certainly didn’t allow a second big down day in a row, did they? As a matter of fact, the Dow gained back virtually all of its Monday losses. So everything is fine…right?

And…in the legendary words of GATA’s Chris Powell…there are no markets anymore, only interventions.

See you tomorrow.

Source: And Then There’s This…Wednesday, July 30th, 2008