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Ed Steer on last week's smashing of gold and silver

Section: Daily Dispatches

2:50p ET Saturday, March 22, 2008

Dear Friend of GATA and Gold:

We're all hungry for incisive commentary on last week's smashing of gold and silver, and we probably won't do better than what's provided by GATA board member Ed Steer at the conclusion of Doug Casey's Daily Resource Plus letter for Friday. It's appended.

Casey's Daily Resource Plus is free and pretty close to indispensable, and you can sign up for it here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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By Ed Steer
Casey's Daily Resource Plus
Friday, March 21, 2008

On Thursday morning in the Far East, gold did little if anything until Hong Kong opened, where it promptly got sold off. It recovered somewhat until "that magic time" of 3 a.m. in New York and then got sold off hard right up until the London a.m. fix. Then it recovered slightly until the p.m. fix and then drifted lower until the 5:15 Eastern time when the Comex closed for the Easter long weekend. Gold's low for the day was the London a.m. fix.

Silver followed a slightly different route. It followed gold until "that magic time," then was sold off all the way through London and New York without much of a break, finishing on its lows of the day at the Comex close.

Open interest in gold for Wednesday fell 14,599 contracts. That's not as much as I was expecting. There are two possible reasons why this number appeared low. Firstly, not all the changes were actually reported; and secondly, there was probably a lot of shorting going on in conjunction with the short covering. It actually could be a combination of both.

The same goes for silver, whose open interest dropped only 4,643 contracts.

As I've mentioned before, when the Cartel orchestrates a huge smashdown like this, they try to mislead those of us who keep track of such things, by being devious about their methods -- first by under-reporting, and secondly (and almost without fail) they orchestrate their market interventions by starting on a Tuesday afternoon when the cut-off for Friday's commitment of traders report is already past so that their shenanigans won't show up until next Friday. And they love to do it most on the Tuesday immediately preceding options expiry -- which, in this case, is early next week.

I get the feeling that they'll dribble out the open interest data as slowly as they can, but everything will be reported in the COT next Friday -- not the one that's coming out on Monday for positions held as of Tuesday, March 18. There isn't one today, because it's a holiday. And lastly, the open interest numbers I report on Monday should be considerably bigger.

In gold news yesterday, there was this from The King Report:

"Bloomberg reported that LTCM founder John Meriwether’s bond fund lost 24% on recent credit woes. Rumors quickly spread that the fund was liquidating $1B worth of gold."

This is not the first time that Meriwether and gold have been mentioned in the same sentence. It was reported that when Long Term Capital Management went under in 1998, they were involved in the gold carry trade and were short around 300 metric tons of the stuff, and that was the real reason that LTCM got bailed -- to keep that information out of the public domain.

Now let's talk about what you really want to hear: what happened yesterday.

Well, it was the continuation of what happened on Wednesday. Once the boys gave the overbought positions a big enough shove on Tuesday, the Cartel pulled their bids on gold and silver (plus all the other commodities they've got their fingers in) and down went the prices.

As I said, the 50-day moving averages for both metals were ripe for the picking, and they did exactly that, in spades! This was way more than I (and Ted Butler) thought they would do. I had a chat with Ted yesterday in the early afternoon, and he feels that this take-down way past the 50-day moving averages probably got between 90 and 95% of all the spec longs out there, with a few more to follow early next week. We both feel that the 200-day moving average is too much of a stretch for the Cartel right now.

With options expiry early next week, and first-day notice for delivery (gold) for the April contract on the 31st, things may be kept subdued until after the end of March, but it now appears that this painful (but oh so healthy) correction will soon be behind us. I said it was going to be quick. I mentioned on Wednesday that I was itching to invest the money that I'd taken off the table about a week ago, and I scratched that itch yesterday by re-investing every cent of it.

Well, the big story yesterday, which is spreading like wildfire on the Internet, is the sudden appearance of shortages in physical silver by the big wholesalers. Quite a few of them are no longer taking any orders at all for anything. There appear to be some 100-ounce bars around, but there's virtually nothing left in any other size anywhere.

I heard about this from my own dealer a couple of days back when he couldn't get an order filled from his U.S. supplier, and another large Vancouver dealer couldn't get silver out of A-Mark, and we were discussing it again with some urgency yesterday morning. However, before I could say anything about it on the Net, I got a copy of an e-mail that Jason Hommel at had sent out. Shortly thereafter, the contents of the e-mail went up on over at Peter Spina's site,

Since this news went out in the public domain, my dealer here in Edmonton has been overwhelmed by business he has only been able to partially fill. I would suspect that this is a scene that is being carried out at every coin and bullion shop throughout the English-speaking world right now. It would be my guess that by Monday there won't be an ounce of silver to be found anywhere -- and if there is, it will have a huge premium attached to it.

This all jibes with what Butler was saying in his latest commentary about the silver ETF being very slow in getting physical to meet its requirements. The U.S. Mint sales of silver eagles have gone through the roof in the last five months and they've run out of blanks a couple of times this year as well.

If this all turns out to be true, this silver pipeline will be very difficult to refill, as the back orders for physical silver of any kind will now be off the charts, as those fence-sitters who have been putting off purchasing because of the price, or because there was "always lots available" are now in a panic to get their hands on some.

Another thing Butler and I were talking about is that the "eight or less" silver traders who are short this mountain of silver have inside information as to how much physical silver really exists in good delivery form and at what price are probably more than aware of this unfolding situation. This is why gold and silver got hammered -- so they could cover as many short positions as possible before the inevitable upwards readjustment in price. Ted has always felt that this is how it would come to an end -- with one final smack to the downside --and this could have been it. As they say, we will find out in the fullness of time. Here's the silver commentary in question, and it's linked here:

Since it's a long weekend and you probably have the time, here's another piece by Paul Craig Roberts entitled "A Bankrupt Super Power: The Collapse of American Power":

"If you are neutral in situations of injustice, you have chosen the side of the oppressor. If an elephant has its foot on the tail of a mouse and you say that you are neutral, the mouse will not appreciate your neutrality."

-- Desmond Tutu.

Let's see now. ...For today's fun video, I've selected another piece of music from the early 1970s. To really get in the mood, you'll need platform shoes, bell-bottom pants (preferably polyester), frilly shirt, frizzy hair, and large gold chains (one with a "peace" symbol). A bottle of wine and a couple of hand-rolled pointy cigarettes would complete this ensemble. Once the pointy cigarettes and the wine have kicked in, click here:

Have a wonderful long weekend. Enjoy it to the fullest, because as of Monday, it's "once more into the breach, dear friends" ... and "Peace be unto you" from all of us at Casey's Daily Resource Plus. See you Tuesday.


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

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