Gold and silver started the week by rising slowly in price from the Globex open in the Far East through the London a.m. fix. The rally in both metals ended at 7:00 a.m. NY time when the usual not-for-profit sellers showed up. And just like Friday, the bottom was in at the London p.m. fix...which is 3 p.m. in London...10:00 a.m. in New York. Then both metals rallied sharply until 11:20, sold off, and then rallied into the Globex close at 5:15 p.m. New York time. Both gold and silver finished on their 'highs' of the day...such as they were. But having said that, Monday was options expiry and to see price action like this was rather amazing, and certainly not what I was expecting.

Here's the Kitco gold chart for Friday and Monday's trading. The lows at the London p.m. fix stick out like the proverbial sore thumb.

click to enlarge

On gold's wild ride on Friday, the o.i. dropped 970 contracts. However, silver had a much bigger drop in o.i. on Friday...down 2,771 contracts. That drop goes along with Thursday's decline in silver o.i., which was 1,256 contracts....a number I wasn't able to track down for my Saturday a.m. commentary.

As I mentioned a few lines ago, yesterday was options expiry...and the bullion banks/'8 or less' traders are still short massive amounts of both gold and silver. They only covered a very small fraction of their short positions in both metals this time around. They weren't even able to (or didn't want to) take out gold's 50-day moving average...and they couldn't (or didn't want to) get either metal below their last Friday's lows. A sign of weakness...or are they just keeping their powder dry for the 'August Low'? Options expiry in August is the 28th. First day notice for delivery into the August gold contract is Friday, July 31st.

The day after options expiry in July, gold and and silver both had big rallies. Will history repeat...or will we have to wait until next week when first day notice has past? We'll find out soon enough.

The usual NY commentator had the following to say about gold's activity on Friday and Monday..."Friday's $17+ range and up $4.50 Comex floor close saw open interest slip only 970 contracts (3.02 tonnes). Fresh sellers and long liquidation were accommodated by fresh buying, it seems. Several commentaries note that last week's CFTC data indicated that gold was virtually the only commodity which did not experience significant net liquidation.

"Today's (Monday's) familiar morning sell-off and recovery to close up 90c was dismissed by some as a quiet day. Yet estimated volume was 230,870 lots with a switch effect of 31,712: any day with 200,000 contracts trading outright is only quiet in the sense of suppressed."

Today is cut-off for Friday's Commitment of Traders report. I'm hopeful that all of gold and silver's wild ride into options expiry will be in it. We shall see.

On Friday afternoon, I had my regular weekly radio interview with my good friend Al Korelin, of Korelin Economics. If you're interested, the link is here.

The news on Monday, and over the weekend, was beyond belief...The IMF sees no end to the credit crisis...the FDIC closed two more banks...First National Bank of Nevada and California-based First Heritage Bank. There will be hundreds, if not thousands more, before this financial and monetary debacle is over. I see that Valero Energy in Texas was informed that Mexico would be cutting crude deliveries to their refinery by 15%. Reason? Mexico's oil production is in precipitous decline. Talking about oil...in a Financial Times story out of London...the move to put curbs on energy speculators was blocked by Republican legislators on Friday. The groups that were opposed to this legislation were...the Chicago Mercantile Exchange, the ICE, the NYMEX and the New York Energy Exchange. No surprises there.

The first story of the day is from the United Kingdom. In a move that probably made Paulson, Bernanke and the Fed swell with pride, the Chancellor of the Exchequer, Alistar Darling, has come out with a plan to rescue that country's mortgage industry. The story is from The Telegraph in London and is entitled "Treasury plan to rescue mortgage lenders". If this sounds like a carbon copy of what the U.S. just did for Fannie and Freddie, it's pretty close. The link is here.

In another story that has garnered almost no headlines...like every other news item I've mentioned in my column today...here is a story of a short seller on the wrong side of a crude oil trade. I mentioned the company last week...Semgroup...that went under because of a $3 billion loss in the crude oil market. This is a GATA dispatch of a Ted Butler essay, with a preamble by GATA's secretary treasurer, Chris Powell. The comparison to that situation...and the short situation in silver and gold...is disturbing to say the least. I urge you to read this very carefully. The essay is entitled "Coincidence or Confirmation". The link is here.

Anyone who thinks the banking sector is out of the woods is as stupid as a fence post, as corrupt as a Wall Street bond dealer, or as asleep as Rip Van Winkle. - Dr. Jim Willie, 24 July 2008 - goldenjackass.com

Reality caught up with Wall Street again yesterday. Will the boyz allow two big down days in a row? It's not normally part of their SOP, but it has happened before. As I said in my radio interview with Al Korelin..."What we are looking at is an economic, financial and monetary hallucination."...and if the 'powers that be' hadn't been blowing asset bubbles left, right, and center, this market would have crashed more than a decade ago...and we wouldn't be staring Armageddon between the eyes as we are right this very minute.

I hope your Tuesday goes well, and I'll see you here tomorrow morning.