It was a huge surprise for most that the NYMEX was open on Monday to permit “pre-Gustav trading” in oil, says Ed Steer in Casey Research. There were those in both the gold and silver markets that took complete advantage of the fact that “while the cat’s away, the mice will play” and kicked the living snot out of both metals.

Volume was non-existent. The price began its decline in London on Monday and kept declining almost without a break until the London p.m. fix on Tuesday. The Tuesday morning sell-offs starting at the Sydney close and the Comex open were noteworthy. Fortunately, most of New York’s ‘losses’ for the day were made up by the end of regular Comex trading. The shares were killed. But you have to look on the bright side. Poor iridium dropped a cool $1,000/oz.

The usual NY gold commentator had plenty to talk about. On Monday he had this to say…”Gold jewelry sales in Abu Dhabi soared 300% in volume and almost 250′% in value in August from a year earlier…’It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year,’ Abu Dhabi Gold and Jewelry Group Chairman Tushar Patni told Reuters.

“Today’s (Monday) gold action was highly unusual. Gold rarely does much on US public holidays. After two brisk rally attempts, heavy selling apparently started just after the Indian close (mid-morning UK time) went right through the second fix (AM $832, PM $822.55 – unusually far apart) and continued in the after market: odd, because both the US and Canada were closed today.

“Clearly, there is a powerful seller of bullion around, willing to deal on the fix and apparently not very concerned about realized price – else why sell into a North American vacuum? Some think physical demand the key on a downswing; others think Western Hemisphere speculative(?) sentiment. Judging by these Indian premiums, this is about to be put to the test.”

And yesterday… “Reuters published a valuable story today quoting the President of the Bombay Bullion Dealers Association to the effect that Indian gold imports in August were ‘about 100 tonnes’ compared with 22 tonnes in July/08 and 67 tonnes in August last year. This is an astonishing acceleration, especially as the rupee last year was stronger and world gold in the $620s.

“The Istanbul Gold Exchange published Turkey’s August gold imports yesterday too, which were equally astonishing. Imports were 47.185 tonnes, the highest in the 13 years of data the IGE supplies…344.2% above July and 70.8% above August last year. The weighted average $US price, according to the Exchange, was $853.53…down 8.6% from July but 28.3% above August last year.

“These increases far exceed what can easily be explained by price elasticity of demand. In the case of Turkey, only one other 40+ tonne month has been recorded – July last year – and only three 30+ tonnes.

“July last year in Turkey seemed to be influenced by geopolitical tensions. Perhaps the same is true now.

“Another question which occurs is…where is all this physical coming from? Selling right through the PM fix has been a regular feature – this cannot be done without deliverable metal. The ECB group continues not to show involvement. This week’s statement of condition indicates that consolidated ‘gold and gold receivables’ fell €31 million…1.63 tonnes at the current book value. This is attributed to a sale by one captive CB (central bank). Last week’s was 1.16 tonnes.

“Today’s (Monday) extension of Labor Day’s serious losses saw very heavy volume: an estimated 191,536 lots by 1 pm, with only a 7,500 switch effect.”

Naturally, there was huge liquidation in both gold and silver yesterday as the tech funds pitched more longs/went short and the ‘4 or less’ traders (bullion banks) covered more shorts and/or went long. As of the last COT, the ‘4 or less’ traders in gold and silver held 62% and 61% respectively of the entire Comex short positions in these two metals. Will Tuesday’s numbers be in this week’s COT? Even though yesterday was the cutoff for Friday’s report, I’m not holding my breath.

In other news, I see that Australian gold output was down 13% in the Q2/08. Harmony Gold had to close a couple of mine shafts after 3 miners died on the weekend. British Chancellor of the Exchequer, Alistair Darling, said in a story out of The Guardian that Britain is facing “arguably the worst economic downturn in 60 years” which will be “more profound and long-lasting than people had expected.” Of course it’s that bad, or worse, in the USA, but they’re just better at cooking their books than the Brits…and they’re far better liars too! According to the Financial Times…”Merrill Lynch’s losses in the past 18 months amount to about a quarter of the profits it has made in its 36 years as a listed company.” And Integrity Bank of Alpharetta, Georgia was closed on Friday…the 10th bank to collapse this year. The FDIC says that U.S. banking industry profits plunged by 86% in Q2/08. And lastly, the FDIC also reports the number of banks ‘in trouble’ has risen from 90 to 117 in the last quarter. It’s my bet that it’s several multiples of that.

The first story today is from resourceinvestor.com and is written by Gene Arensberg. Last week he wrote about the collapse of the silver price. This week, it’s about what happened to the gold price. The story is on the longish side, but well worth the read, as the charts and graphs are excellent. The title is “Got Gold Report – Firestorm Erupts Over U.S. Banks’ Gold, Silver Shorting”. The link is here.

The second story is the latest from silver analyst Ted Butler. This time he elaborates on his disclosure of the recent hyper-concentration of the short position in the silver market, speculating that it was a U.S. government-sanctioned operation. This is a ‘must read’ and is entitled “Fact vs. Speculation”. The link is here.

That day, the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake. – Former Fed Chairman Paul Volcker writing in his memoirs in reference to a general Western central bank currency realignment agreement that took effect on Feb. 12, 1973

The Dow soared on the open…only to fall apart after lunch…and at 3 p.m. it was obvious that ‘gentle hands’ were there to prevent a major debacle to the downside. And as I’ve said many times…there are no markets anymore, only interventions.

See you tomorrow.

Source: And Then There’s This Wednesday September 3, 2008