From Ed Steer:

Both gold and silver took off the moment that trading began on the Globex in the Far East on Monday morning. This rally lasted until the LBMA opened in London...and that was it for gold, silver, platinum and palladium...as they were all sold off at exactly that time. The selloff in gold and silver lasted until the Comex open in New York, where it rose in fits and starts. But neither metal was allowed to rise above the highs set at the London open. I note in early morning trading in the Far East this morning that the bullion banks have the metals under pressure once again.

Gold's $22 drop on Friday was only accompanied by an open interest decrease of 3,109 contracts. Silver's price drop on Friday resulted in a decline of 954 contracts of open interest. Today is the cut-off for Friday's COT. Will the bullion banks reveal all then?

With both gold and silver further below their 200-day moving averages than they've ever been in their history, it's obvious that the 50-day and 20-day moving averages are nowhere in sight either, so until these averages fall to these spot price levels, or the price is allowed to rise to those levels, volume in Comex trading is going to be pretty skinny for a while. It won't take a lot of volume to move prices in either direction. But the $64,000 question is this...who will be going short against the longs during the next price rally? Are the bullion banks going to put their collective heads back in the lion's mouth? If not, there's nobody else out there to do it for them, so the next rally (when it arrives) could be educational. The three-year silver chart with the 20- and 50-day moving averages is linked here. Gold is here.

The usual New York commentator had this to say about the stunning resurgence in gold demand in India..."The BullionDesk.com has a valuable story explicitly saying that the huge gold demand surge has cleaned out stocks: "London, 15 August 2008 - Available bars of gold in India have all but disappeared, due to a 'perfect storm' that has restored gold's lustre and forced physical premiums skyward ahead of the peak season for jewelry demand.

" ‘Pretty well everyone is sold out of stock there. We have seen premiums as high as $2.50 an ounce which is unheard of in India. Most refiners are now booked solid through September,’ said a senior figure at a bullion bank in London.

"Friday's $22.40 drop on Comex saw open interest fall only 3,109 lots (9.67 tonnes), less than half gold's percentage loss. The bears apparently are still willing to sell, possibly short.

"Two violent efforts in NY today (Monday) to reverse earlier gains in Asian and European time were only partially successful. Estimated volume was just short of 111,000 lots with a switch effect of 9,000: not heavy by recent standards. Gold closed up $13.60."
Another story about Indian gold demand from thehindubusinessline.com is linked here.

Today I have silver analyst Ted Butler's latest commentary. In it...and I quote..." For investors, don’t let this opportunity slip by. I realize you are seeing something with your own eyes that you have never seen before, namely, shortages and low and sharply declining prices. This is contrary to everything you have learned and experienced. It is nothing short of extraordinary. You must rely on your common sense. Something has to give, either prices or supply. This can't last for long. Continued low prices won't increase supply. The only solution for shortage is higher prices. In the case of silver, sharply higher prices. Don't hesitate in buying silver now." The link to the essay entitled "Lessons of a Lifetime" is here.

For my second story, I'm dragging out another Ted Butler nugget from four years ago. I ran it last September, shortly after Casey's Daily Resource Plus got started. I think it's worthwhile to reprint it here and now...at this point in the ongoing saga of both silver and gold. As you read this, just ask yourself this question over and over again. "Why would the Comex quietly change this rule about 15 years ago...unless they knew that a day would come when they would need to use it?" Maybe that time is coming up fast. The essay is entitled "Take it to the Limit" and the link is here.

So let's all of us be Hunts. Ask delivery of $12.80 silver and $790 gold, today. There are 300 million of us. A single ounce of physical silver for every man, woman and child in the United States would squeeze these rat-bastards (bullion banks) harder than the Hunts could ever do. There were two Hunt brothers in 1979. There are 300 million of us in 2008. Even in this country, there aren't enough jail cells to hold us all. And we could take their pants off, once and for all. - David Bond, The Wallace Street Journal, 17 August 2008

One of the most intriguing movies of the last ten years or so, was The Matrix. I can't think of a more apt comparison to what's going on today than that. It's the 21st century equivalent of Alice in Wonderland. There are few pieces of financial paper out there that are worth more than ten cents on the dollar anymore...if that.

See you tomorrow.

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