From Ed Steer:

Almost from the moment that trading began in the Far East on Monday morning, there was someone there to sell the gold and silver market down. This pressure really began to accelerate to the down side at one of the usual times of day...2:00 a.m. New York time...which is early Monday evening in Sydney, late afternoon in Hong Kong...and first thing in the morning (7:00 a.m.) in London.

Then, the moment the Comex opened for business, the bullion bank(s) pulled their bids and both metals sank like stones...particularly silver. For style points in silver, I give da boyz a 9.5/10. Any bets that it was mostly JP Morgan? After that pounding, the metals did nothing for the rest of the day. The shares got creamed.

Ted Butler had this to say about it yesterday..."While I certainly didn't expect it, explaining Monday's sell-off is pretty easy. It was a dealer-engineered drop to get recent Non-Commercial longs to liquidate...and those Non-Commercial shorts who covered in the past week and a half, to reinstate their short positions. I think today's COT will show a deterioration, or increase in the dealer net short position of 20 to 25,000 in gold and 2 or 3000 in silver. Today's action reverses that. It's really quite bullish, but it does feel like crap."

Ted mentioned the COT, which came out on Monday (instead of Friday) because of Thanksgiving. This report was for positions held as of November 25th. In gold, it showed precisely what he said it would on this $83 price rise. The tech funds went long 3,951 contracts and covered 13,092 shorts...as the two U.S. bullion banks went short 14,779 contracts and sold 7,340 long positions...for a net deterioration of 22,119 contracts! In the Nonreportable (small trader) category, the traders sold 1,091 longs, but covered 6,167 shorts. This was a rally that was engineered to fail..."same old, same old"...as JPMorgan went short against all comers. And as Butler said, "Monday's action reverses all that"...which it probably did.

The surprise (for both Ted and I) was in silver. We were both expecting deterioration after the big price rise off the bottom, but we got an improvement instead...mainly because of big liquidation in the 'long silver/short gold' trading position. The current silver COT report is beyond wildly bullish...and will have improved further after the huge price drop yesterday. Ted will have more to say about 'all of the above' in his latest commentary due out later today.

Volume on Monday was razor thin up until the waterfall declines in both metals. From there, volume rose substantially as the tech funds puked up longs (and went short) and the bullion bank in question covered shorts and went long. Hopefully all this will be in the Commitment of Traders report on Friday. The COT for the current reporting period, is linked here.

Looking back to last Friday, the changes in open interest for that day were as follows: Gold o.i. fell 4,409 contracts and silver was down another 1,978 contracts. Monday's action will probably show another decline in open interest when the figures become available later this morning.

I can't begin to describe in words how fast we are approaching the final collapse of everything we know. I expect the Christmas season to be a bust...and the number of retailers (small, medium and large) that won't be around by January 15th...will blow your mind. The Dow being down 680 points yesterday is a foreshock of what's to come. I see in an AP story that California Governor Arnold Schwarzenegger declared a fiscal emergency yesterday...as "the state's revenue gap is expected to hit $28 billion over the next 19 months without bold action." It won't be long before every state in the union will be in a similar situation. A Bloomberg headline read "Russia Manufacturing PMI Drops to Lowest on Record". But the really big news yesterday was a Reuters story filed out of London where the headline read "U.S. TREASURY 10-YEAR CREDIT DEFAULT SWAP SPREAD BLOWS OUT TO RECORD 68.4 BPS"..."The spread or risk premium on 10-year U.S. Treasury credit default swaps hit a record high on Monday." The widening of this credit instrument means more and more investors are concerned the US will DEFAULT on its sovereign debt. I have a related story on this posted further down.

Today's first story is another bullish report on gold...at least as bullish as JP Morgan ever gets. This report follows closely on the heels of one out of Citigroup that came out early last week. To have two back-to-back bullish reports on gold from these two firms has to be a positive omen...and that's the way I'm looking at it. The report is included as a pdf file in this GATA release...and the link is here.

Today's second commentary is the usual monthly essay from Eric Sprott and Sasha Solunac over at Sprott Asset Management in Toronto. It, too, is presented here in the form of a GATA release...as the editorial by GATA's secretary treasurer, Chris Powell, is worth the read as well. The essay is entitled "The Solution" and the link is here.

And lastly, as alluded to in a prior paragraph, Bernanke has now officially announced the Fed's intention to monetize the U.S. debt by buying treasuries...since the rest of the world won't buy them. The Bloomberg stories bears the headline "Bernanke Says Fed May Buy Treasuries to Aid Economy". Ten year treasuries reacted like it was a done deal by falling in yield..."The yield was the lowest since daily Fed records started in 1962 and the least since 1955 as measured on a monthly basis." The link is here.

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The present policy of monetary experimentation should be abandoned immediately. Efforts to depreciate the value of the United States dollar by manipulation should be stopped. A definite policy of returning to a gold standard should be adopted immediately. Announcement of the adoption of this policy would dissipate the widespread fear of inflation and reduce the financial demoralization retarding recovery. - NY Times, December 29, 1933...page 16

I wouldn't give you a plugged nickel for any piece of financial paper from now on. Despite the engineered take-down in the precious metals yesterday, it's the ONLY asset class that I would invest money in going forward. Most gold and silver producers out there are for sale at prices that existed back at the beginning of the gold bull market in 2001. When the gold price is finally unchained, companies such as these will return fortunes for those who had the foresight to invest in them. I'm still "all in."

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.