From Ed Steer:

It's been about fourteen months since I began writing for Doug Casey et al...and last night was the first time that I sat in front of my computer screen totally at a loss as to what to write...or where to start. It was Writer's Block in spades.

Fortunately, I was saved by my friend Doug Noland over at prudentbear.com...who posted later than normal last night. Doug now has a wife and infant son...and understandably his weekly diatribe on Friday evenings is pre-empted by family matters. Here are the first two paragraphs of his essay...which this week is entitled "Hoping There's Hope."

"This is the first all-encompassing global dislocation of contemporary finance, impacting virtually all economies, markets and asset classes. The media is now all over the ‘Wall Street’ and ‘banking’ crisis. I am of the view, however, that the collapse of the hedge fund industry has moved to the forefront – that it is now at the epicentre of global market upheaval. To watch silver lose more than 20% of its value today in intra-day trading; to see the collapse in energy prices; to see the entire commodities complex absolutely routed; to view global currency markets in complete disarray, with double-digit intraday drops in the Brazilian real and Mexican peso; to witness major currencies such as the Australian and Canadian dollars suffer precipitous declines; for benchmark Fannie Mae MBS yields to surge 62 bps in three days; to see Brazilian dollar bond yields jump almost 200 bps in four sessions; for global equities indices to suffer rapid double-digit drops throughout both the developed and ‘emerging’ markets; to witness a 1,000 point intraday swing in the DJIA. All the favorite trades are blowing up, and the leveraged speculating community is in a panic de-leveraging.

"There is no doubt that markets are in the midst of an unprecedented liquidation of positions across virtually all asset classes and a vicious unwind of a multitude of investment and trading strategies. The Massive Pool of Global Speculative Finance is being drained. Investors and speculators alike are desperate to flee risk. Having watched the ballooning of the hedge fund industry over the past few years in absolute awe, I can say today that an industry collapse would entail the sale (voluntary and forced by the margin clerk) and unwind of literally Trillions of positions. It has been history's most spectacular speculative Bubble and, especially over the past few years, it became very much global in nature and infiltrated virtually all asset classes. This Bubble is in a full-fledged collapse – entailing unprecedented liquidations - and it's taking global markets down with it."

But having said all that, it only takes a cursory glance at the gold and silver charts to see that the sell-off in both metals occurred entirely along the usual, and very predictable lines...the top at the London open, the hard sell-off at the London close...and the continuing hammering away at the prices in Globex trading after regular trading hours on the Comex. All are sure signs that the bullion banks are out and about.

Not only that, with the exception of yesterday's trading, there has been virtually no volume to speak of in either metal for the last little while. So, to say that gold and silver are part of this hedge fund unwind is stretching it a bit...quite a bit, actually. The vast majority of the spec longs in both metals were blown out ages ago...and we're already sitting at an almost record low COT position. What happens in the OTC market is totally irrelevant, as the spot price is determined on the CME's Globex world-wide trading system...of which the Comex is a part.

This week's COT proves that. The huge improvement in the silver short positions of the '2 or 3' US bullion banks that Ted Butler and I were expecting, was a bust. True, the tech funds did improve their position by about 1,200 contracts...but the bullion banks in the Commercial category actually went even shorter...around 1,000 contracts worth. The decline in open interest was mostly in spreads being lifted (-2,101)...and the small traders in the Non-Reportable category who eliminated short positions (-2,971). When all was said and done, open interest week-over-week was only down -3,929 contracts...which is ho-hum at best. No signs of massive liquidation here.

In gold, there was some improvement. The bullion banks covered around 9,500 contracts net...while the tech funds pitched 3,354 contracts and went short 2,819 contracts. Open interest only fell 7,118 contracts...which is almost a rounding error in the grand scheme of things. No panic selling there, either.

So what happened on Friday in gold and silver? With the vast majority of speculative long positions in gold and silver already unwound weeks ago, it's my opinion that the boyz pulled their bids. As I've said before, waterfall declines in price are always a sign of this. The powers that be did not want the precious metals rising in the face of a global rout in the world's financial system and equity markets. Lately, gold and silver have been showing real signs of life in Far East trading. This was underway yesterday morning...and was nipped in the bud at the London open. The boyz didn't want any safe harbour going into a Friday that was obviously fraught with danger. There was decent volume yesterday...but panic liquidation by hedge funds??? Not a chance! This was the work of the '2 or 3' US bullion banks that control the vast majority of the precious metals short positions on the Comex. There's nothing free market about this silver chart...or the gold one either.

click to enlarge

Thursday's open interest did include that $40 rise in gold in after hours trading on Thursday afternoon. It was obviously not a short covering rally as I suggested, as the open interest sky-rocketed 12,298 contracts. Someone was buying big time. Silver o.i. on the other hand was down a minuscule 17 contracts. Whoever went long on Thursday evening probably got blown out the next day...along with Dennis Gartman's hours-old new long position.

In other news yesterday, I see that LIBOR is still at a record high and the credit markets remain frozen solid. And in a Bloomberg story..."The cost of default protection on corporate bonds soared to records around the world on investor concern that the deepening credit crisis will trigger rising failures as companies struggle to finance their businesses."

Today's first story is from Bloomberg...and it should really make you stand up and take notice. Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they "rewrite the rules of international finance."...A solution to the financial crisis "can't just be for one country, or even just for Europe, but global"....leaders are "talking about a new Bretton Woods." A new world currency??? If it's not backed by gold...good luck introducing it in this monetary climate! But it's worth the read and the link is here.

The second item is by James Turk over at goldmoney.com. It's something he wrote for Bill Murphy over at lemetropolecafe.com yesterday. As the market for physical gold and silver separates from the market for paper gold and silver...people are wondering how a major purchaser like GoldMoney.com is obtaining its metal. You can find out the whole story by clicking here.

And lastly, here's an interesting piece by Clive Maund. If his name hadn't been on it, I would have sworn that Doug Casey himself had a hand in writing it. As you would suspect (if you know Doug) it's a bit of a 'dark' piece...and is entitled "Impending U.S. Economic Collapse and Death of Democracy." The link is here.

We are probably close to the point (probably just weeks away) when the gold cartel stops supplying metal in London and Zurich at these low prices. The question is: What comes next? It is, of course, impossible to predict what the gold cartel has up its sleeve...but I sense that a big announcement by governments is coming soon. It is reasonable to expect an outcome like March 1968, in which case the free-market price of gold will soar. - James Turk, goldmoney.com, 09 October 2008

Today's "blast from the past" is well worth the listen. Turn up your speakers...click here...and enjoy!

It's my opinion that the world's financial system is on the verge of total collapse. I don't think that anything can save it...or stop it...and I don't care how much 'money' they throw at it. It seems like confidence in the system is eroding by the day. The speed at which events are now unfolding has become frightening...and unless the G7, IMF, or World Bank pull a gold-backed currency out of the hat in the next few days...it's my belief that it's all over.

Enjoy the rest of your long weekend...if you get one...and I'll see you Tuesday morning.

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