From Ed Steer
The price action in Thursday's trading in the Far East and Europe was similar to Wednesday's. Both silver and gold rose a bit during that time period, only to be taken to the cleaners the moment that the Comex opened in New York. The pattern is so obvious, only the brain dead can't see what the NY bullion banks are doing. The last three days of trading on the Kitco gold chart tells all.

click to enlarge

It appears that they are really serious this time. We're already below the 200-day moving averages on both metals, but the bullion banks are out for more tech longs. How many they're going to get remains to be seen. Even in early Friday morning trading in Sydney, gold and silver were taken down abruptly...a pattern that I haven't seen that often. Ted Butler said that there could be more pain before this is all over. Give the man a cigar.

Gold open interest on Wednesday fell 5,060 contracts as the tech funds continue to liquidate...and maybe go short. And silver??? For the third day in a row, the silver o.i. was up...this time by 1,086 contracts. Go figure.

Lots of gold news today. South African gold production fell 12.3% y/y in June. The global gold hedge book was cut by 16% in Q2/08...2.7 million ounces of that was Anglogold Ashanti. As of the end of June, total gold hedged was down to 18.7 million ounces...about half of that belongs to Barrick. And lastly, the China Gold Association announced that China's gold output was expected to reach 300 tonnes in 2008, surpassing that of South Africa and making China the world's largest gold producer.

Not helping precious metals share prices these days are the massive redemptions that are hitting all the precious metals funds...a fact that was pointed out to me by John Embry when were talking on the phone yesterday. When redemptions hit, the funds have to sell whether they like to...or want to.

In other news, according to the Kuwaiti newspaper Kuwait Times, "two additional US naval aircraft carriers are heading to the Gulf and the Red Sea. Kuwait began finalizing its 'emergency war plan' on being told the vessels were bound for the region." According to Stratfor, "Georgian troops have taken Tskhinvali, the capital of the breakaway Georgian republic of South Ossetia"...Russian troops are on the move..."and reports are that Tskhinvali is being massively shelled and violent fighting is taking place nearby." And finally, in a Bloomberg story..."Pakistan's President Pervez Musharraf faces the battle of his political life after the civilian government united yesterday on a plan to impeach him -- a fight that may prompt the army he once commanded to show him the door." If Musharraf goes, it's my bet that the 'special relationship' with the US will go with him. But maybe the US will rush in troops to save him!

As if this military conflict in Central Asia (and the potential conflagration in the Middle East) isn't bad enough, there are nation-destroying problems in Western Europe as well. My first story today is about that very thing and involves the country of Belgium. The situation that exists there today is not news to me, as I remember studying this in high school back in the 1960s. However, it may be news to you. The story is from The New York Times and is entitled "With Flemish Nationalism on the rise, Belgium Teeters on the Edge". The link is here.

To complete today's commentary, my second story also has an international flavour. Ever since the Putin government began reasserting control over its own energy resources, the powers that be in the world (mostly US) have been vilifying Putin at every opportunity. Not that the Russians are lily white, but if you look back at how the US and NATO have treated (and surrounded) Russia since communism collapsed...and then later defaulted on its bonds, you may have some inkling as to why Putin is reacting the way he is. My most vivid memory of Putin is the photo of him holding a gold bar in his hands. He understands perfectly the Achilles' Heel of the western banking and financial system. The story (for which I thank P. Spicer for) is from the International Herald Tribune and bears the headline "Churchill's definition of Russia still rings true"...and the link is here.

Who is the gold cartel? It is an unholy alliance of bullion banks working in cahoots with the federal government. Their aim is to keep the gold price subdued, and the reason is simple. Gold is a barometer of monetary problems. A higher gold price acts like a canary in a coal mine. It alerts everyone that monetary problems are developing. The last thing the feds want is for gold to start climbing back above $1,000, particularly now as the banking system is imploding from writing off all the bad loans accumulated during the bubble from their reckless lending. A rising gold price would be a clear signal for everyone to see that the banks are in trouble. - James Turk, August 3, 2008

Despite that quote, when the dollar 'rally' ends, and the bullion banks are done with this grand flush out of theirs, it will be the 'all clear' signal for the next leg up. This time I feel that after the next rally, a $1,000 gold price will be a floor...not a ceiling.

Have a great weekend and I'll see you on Saturday.

Casey Research's correspondent-at-large Ed Steer is keen observer of the financial markets and a board member of Gata.org