From Ed Steer:

Gold did practically nothing in Far East trading on Wednesday. However, there was a small top at 3:00 a.m. New York time, and from there the price began a gentle decline until shortly after the Comex open. It wasn't a large decline, but it's the trend that's worth noting. This is the third day in a row that prices have declined in London like this. Don't ask me what it means...if anything.

Then at 9:00 a.m. on the dot, the gold price exploded for about a $30 gain in precisely one hour. Was it short covering...the US$ action...or something else? The top was in at the London p.m. fix....10:00 a.m. New York time...right to the second. Then JP Morgan showed up...and within two and a half hours had taken back the entire gain. It tried to rally at the London close, but that attempt got shelled. They even managed to finish gold on its low of the day (under $740 again) at the end of Globex trading at 5:15 Eastern time in New York.

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Silver followed the same general path (and precisely the same times) as gold, but JP Morgan (which holds 81% of the net short position in the Commercial category of the COT) really laid a lickin' on it, with the closing price down 40 cents from the previous day. Ted Butler says that silver is the "centre of the universe" for the bullion banks...and they probably beat the living hell out of gold so they could lean even harder on silver. It worked like a charm yesterday. Silver's low was also at the end of Globex trading in New York late yesterday afternoon.

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It also looked like the HUI was going to take off like a bat out of hell yesterday, and certainly would have if that spike in gold and silver had been allowed to stand. After the spike, the HUI and the XAU got sold off with the general equity markets. Mission accomplished for the boyz.

Today is options expiry on the Comex in both metals. It sure seems like someone is trying to keep the gold price under $740 until that happens. The vast majority of call options will expire out of the money (and worthless) at this price. The longs get screwed again...and the bullion banks "ring the cash register"...again. And your mining companies do nothing...again.

Gold open interest on Tuesday was up 4,481 contracts to 289,700...but silver o.i. made a new low for this move...dropping 1,904 contracts to 91,853...which is a huge surprise considering the rally it had. Hopefully these changes will be in the COT tomorrow.

There was lots of gold news yesterday....Moscow, Nov. 19 (Reuters) "Russian banking major Sberbank said on Wednesday (that) sales of precious metals have surged this year as its clients seek safe investments in the face of turbulent financial markets...clients had bought around 6 tonnes of silver ingots in the first 10 months of the year---three times as much as during the whole of 2007...Gold purchases for the period totalled 10 tonnes, or 50% more than all of 2007." In a story in Britain's guardian.com, Iranian cabinet minister Shamseddin Hosseini is now denying that Iran has converted its reserves to gold. I also note in a story posted over at gata.org yesterday that "Wachovia Securities this month alerted its brokers and clients that it no longer would purchase precious metals for brokerage accounts, only shares in precious metals exchange-traded funds. In an explanation given to its brokers, Wachovia said the precious metals markets ‘are illiquid with wide bid/ask spreads and minimal transparency.’ This implies that real metal is awfully hard to get these days, and maybe that some brokerages would prefer that their clients not get it."

But the really big gold news yesterday was from the World Gold Council. It has finally 'fessed up to the fact that the demand for physical gold is off the charts. Adrian Douglas, GATA's new board member, had extensive commentary at Bill Murphy's lemetropolecafe.com yesterday about the press release...and imho...is well worth the read.

"I have read some of the news wires reporting on the World Gold Council Q3 demand report but NONE of them come close to conveying the screaming bullishness of the WGC report itself. IT IS A MUST READ.

"Here are some key points from the report:

“Dollar demand for gold reached an all time quarterly record of US$32bn in the third quarter of 2008.

“This figure was 45% higher than the previous record in Q2 2008. Tonnage demand was also 18% higher than a year earlier.

“Identifiable investment demand, which incorporates demand for gold through exchange traded funds (ETFs) and bars and coins, was the biggest contributor to overall demand during the quarter, up to US$10.7bn (382 tonnes), double year earlier levels. Retail investment demand rose 121% to 232 tonnes in Q3.

“Gold ETFs enjoyed a record quarterly inflow of 150 tonnes in Q3. Net inflows surged by an unprecedented 111 tonnes during 5 consecutive trading days, equivalent to US$7bn.

“Q3 saw a record US$18bn of consumer demand for gold jewellery with buyers returning to the market on lower price points, around and below US$800, demonstrating the underlying positive sentiment towards gold and its recognition as a store of value.

"Despite a deteriorating global and domestic economic climate, demand in India, the largest market for gold demand, recovered during the third quarter, encouraged by lower gold prices, a good monsoon and the onset of the festive season. At 250 tonnes, total consumer demand was 31% higher than Q3 2007 levels. In value terms, demand hit the record quarterly sum of US$5bn.

“Demand in Greater China rose 18% to 109 tonnes, with the majority of this increase attributable to a strong rise in demand in mainland China (+16 tonnes).

"Jewellery demand in the Middle East, which accounts for more than 90% of total consumer off take in the region, rebounded in Q3 with tonnage demand up 15% on Q3 2007 and up 47% in dollar terms, hitting a new record of US$2.8bn. Retail investment demand, while relatively small in size at 7 tonnes, recorded strong growth of 23%, and 57% in dollar terms. In Turkey total Q3 off take, at 99 tonnes, was up 15% on the levels of a year earlier, with investment demand smashing all previous records to reach 31.7 tonnes.

“Gold supply was down 9.7% on year-earlier levels, largely driven by a significant reduction in central bank sales. Sales under the Central Bank Gold Agreement (CBGA) totalled a provisional 357 tonnes in the CBGA year ending September 26, the lowest annual figure since the first Agreement was signed in 1999.

"The word ‘Record’ was used 11 times in a one page press release!

"But the most interesting of all is this quote: ‘As the financial crisis deepened these increases in identifiable investment demand were offset by outflows in "inferred investment". This was characterized by hedge funds liquidating investment positions in gold as they were forced to raise cash and by institutions liquidating commodity index investments, including gold, as fears of recession deepened. The trend largely reflects gold's better performance relative to other assets and also explains why the gold price did not perform better during the quarter in the face of very strong demand.’

"Notice the categorization of ‘inferred investment’. The physical gold market was ON FIRE breaking all records while the paper market of futures contracts (inferred investments) was being sold off. As we know this was instigated by 1 or 2 US banks selling short 10% of annual gold production and 25% of annual silver production in 4 short weeks during July.

"When you see the massive record breaking physical demand, one has to wonder where the banks might source such supply if they had to deliver on the contracts and WHY would anyone sell such a massive amount of ‘inferred investment’ with the physical market on fire. This is absolute vindication of GATA’s work. The only viable reason was this was intended to cool off the physical market. It obviously failed. On the contrary it probably stimulated the physical market as real money was being sold at a discount.

"The most important point about this report is that the huge record breaking physical demand has to be met with real record breaking supply…but mine supply has declined 9.7% and Central Bank sales that have been reported, are declining. This would imply that gold sales, or loans that are not being reported, are having to fill the growing gap between demand and supply. Such a supply squeeze is totally consistent with the (US) Mint's limiting supply, coin melt bars from Fort Knox showing up on the market, and gold supply being rationed to India with pathetic excuses of credit risk exposure and the unprecedented massive covering of the traditional shorts on the TOCOM who are going neutral to net long!

"The sell off on COMEX is liquidation of demand for gold that doesn't exist. This has helped the Cartel, but it has NOT SOLVED THEIR PROBLEM OF LACK OF SUPPLY. There are still 250,000 gold futures contracts outstanding that are above and beyond the ability of the COMEX to deliver. A percentage of these contracts will stand for delivery. Perhaps it will be a large percentage, who knows? But we will soon find out. A percentage of this ‘inferred investment’ can shortly become REAL DEMAND for PHYSICAL METAL. You can see from this report that the record demand has strained the system to the limit and created unprecedented shortages. The system can not deliver on even 10% of the Open Interest currently outstanding on COMEX. The stage is set for a coming massive short squeeze."

The one page press release from the World Gold Council is linked here.
That's more than enough for 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.