From Ed Steer:

Both gold and silver recovered from their sell-offs in early morning trading in the Far East yesterday. Both spiked upwards about 15 minutes before the Comex open...and were subsequently capped at their highs of the day very shortly after that. From there...it was down, down, down until a bottom was in a few moments after Far East trading began early this morning in Sydney... which was 6 pm NY time last night.

Open interest is once again in the spotlight. On Tuesday, gold open interest fell another 9,816 contracts. That's a lot...30 tonnes to be precise. Silver o.i. on the same day was down only 17 contracts. Tomorrow is the day that the new COT report is issued. It would be just peachy keen if this number shows up in it. The '2 or 3' bullion banks are on the run...covering every short they can...and probably going long at the same time.

Yesterday, UBS gold analyst John Reade had this to say..."Comex option expiry on Thursday (today - Ed) has a lot of open interest between $890 and $910/oz, and we believe it is no co-incidence that gold is struggling to get far from here at the moment. Barring an external factor breaking gold out of this range - which effectively means either a big move in the dollar, perhaps crude oil, or possibly risk aversion - then we will remain around the current levels until after the expiry, which takes place after the Comex close (today). Then gold will be better able to move more freely, as gamma hedging will reduce." October is not a big delivery month in either gold or silver, so its associated options expiry date (Sept. 25) is somewhat of a non-event. We'll find out in the next 36 hours if what he's said here holds any water.

In other gold news yesterday on Bloomberg...Barrick Gold Chairman, Peter Munk said bullion prices will go higher, driven by large-scale buying by "major, major" holders of dollars who fear the effects of the U.S. government's bailout plan on the currency. Yesterday the SLV added 3.7 million ounces. Nothing was added to GLD. And the US Mint has punched out 1,375,000 silver eagles so far this month.

In a Reuters story...."US gasoline inventories have shrunk to their lowest since 1967. The drop in fuel stocks has caused long lines at service stations in southern cities. Retail outlets, including those in Atlanta and Memphis and as far away as Ohio, have run out of fuel." In a Bloomberg story..."Investors outside the United States, who own more than half of all Treasuries outstanding, say the government's $700 billion plan to revive the banking system will diminish the appeal of the nation's bonds." (Diminish??? They're being kind when using that word - Ed). Bloomberg...Interbank interest rates (including LIBOR) shot to new highs yesterday as the credit markets remain frozen solid in Europe and the US. Efforts by central banks to revive money markets with emergency cash auctions haven't worked. "There's no real term funding markets except for central banks," said Meyrick Chapman, a fixed-income strategist in London at UBS AG. And lastly...there has been another run on a bank...this time it's the Bank of East Asia in Hong Kong. In the photo below, an obviously distraught depositor has her turn at an ATM in Kwun Tong.

click to enlarge

Today's first story is downright scary! It's from the South China Morning Post in Hong Kong. It's entitled "Mainland Lenders Ordered to Halt Interbank deals with U.S. Banks" This is being done "in a bid to prevent possible losses during the financial crisis." The link is here.

The second story is from the Russian News and Information Agency (RIA Novosti) in Moscow, and is provocatively entitled "Time For a Gold Rouble?" Knowing what I know about Vladimir Putin, it wouldn't surprise me a bit if that's exactly what he does! The link is here.

Where all this might end, nobody can say. But it is unlikely that either the dollar, or the post-Bretton Woods system of which it is the beating heart, will emerge whole. - James Grant

I see in an AP story yesterday that "Iran's president addressed the U.N. General Assembly Tuesday declaring that ‘the American empire’ is nearing collapse and should end its military involvement in other countries." That sounds suspiciously like what Patrick Buchanan said in his commentary that I posted here on Monday. It's obvious that all eyes in the world are on the U.S.A. as it continues to circle the drain.

Enjoy your day today, and I'll see you on Friday.

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