From Ed Steer:


As has been the case lately, gold sold off quietly the moment that Globex trading began in the Far East yesterday morning. As I've said before, volume is razor thin at the best of times in that part of the world, and only improves on the London open. But having said even that, over 90% of daily volume in the precious metals market occurs during regular hours on the Comex in New York. For all practical purposes...the New York market is the gold market. In silver, it's even more so.

Anyway, neither gold nor silver did much of anything until Comex trading began. Then they were off to the races...and the prices even went vertical after the London p.m. fix. Then JPMorgan or HSBC USA showed up...and it was down and sideways for the rest of the trading session on the Comex...and electronic trading thereafter. Silver put in another stellar performance.

So far, this is a wonderful rally in both metals, but it is not...as I've said before...going unopposed. This rally is shaping up to be the 'same old, same old' where JPMorgan goes short against all longs. That should be obvious to anyone looking at the price capping action at, or shortly after, the London p.m. fix is in at 10:00 a.m. New York time. True, there hasn't been a lot of volume, but Ted Butler feels that the tech funds and the small traders have tacked on between 20-25,000 contracts on the long side since the last COT...so there has been deterioration. Ditto for silver. Technically, we're close to an overbought condition as indicated by the RSI in both gold and the HUI. Could we get a short-term correction here? Sure. The action in the HUI yesterday did not impress me, and whenever I've seen that sort of counterintuitive price action before...in the shares, vis a vis the bullion...it flashes 'red alert' to me. Today's activity should tell us a lot. Note with care, the current condition in the 1-year HUI chart below...

click to enlarge

Open interest on Tuesday for gold went up 2,635 contracts to 282,915. In silver the o.i. only increased 637 contracts to 87,389. Despite what I said above, gold and silver prices are rising on very little volume...especially in silver! This is extremely positive, as it appears that the really big buyers, the tech funds, still haven't shown up at this party to take prices much higher...if they have any money left, that is. Correction or no correction, this rally has a long long way to go.

In other gold news, the GLD ETF added another 128,000 ounces and the SLV added 1.1 million ounces. GLD shows a new record of 775.33 tonnes as of yesterday. Here's what it looks like in graph form...courtesy of Gene Arensberg.

click to enlarge

I note in a Bloomberg story filed out of Tokyo early this morning...The yen fell from near a 13-year high against the dollar after Japanese Finance Minister Shoichi Nakagawa signalled the nation is ready to sell the currency...“we will take necessary steps if needed” to limit the currency's advance and protect the overseas earnings of Japanese exporters. (Competitive currency devaluation has already begun. - Ed) I see that G. Dubya had an interview on CNN the other day where he said..."I've abandoned free-market principles to save the free-market system...to make sure the economy doesn't collapse." But Bush said government action was necessary to ease the effects of the crisis, offering perhaps his most dire assessment yet of the country's economy..."I feel a sense of obligation to my successor to make sure there is not a, you know, a huge economic crisis. Look, we're in a crisis now. I mean, this is -- we're in a huge recession, but I don't want to make it even worse." (It's way too late for that George...now please leave...quietly! - Ed)

Today's first story is from James Turk over at goldmoney.com. Mr. Turk has a few things to say about the 'infinite money' situation that we all face from this point on. The piece is entitled "Whatever It Takes" and the link is here.

The second commentary comes from a posting by Peter Schiff at seekingalpha.com entitled "In Madoff We Trust". I thank John Grandits for providing this. It's well worth the read and the link is here.

And lastly...I've been saving this story for about ten days...looking for an appropriate time, and this is it. As you know, Bernanke et al are desperately trying to save the world from a deflationary collapse...and it's not only the middle and lower class that are being decimated by this...the rich are being hit hard as well. This story is from the International Herald Tribune and bears the title "Luxury prices are falling; the sky, too". I thank Phil Spicer for this story. The link is here.

"You are dealing with a commission whose effectiveness in fraud deterrence is open to serious question," said Professor Joel Seligman, an expert on the subject. Open to question? We would say the question is settled. The SEC does not fight fraud; it aids and abets it...One thing is sure; we'd get along fine without the SEC on the job. It does more harm than good. It merely helps perpetrate a fraud -- misleading investors into believing that their money is safe on Wall Street. As we've seen, donuts were safer on a fat farm. - Bill Bonner, The Daily Reckoning, December 17, 2008

Well, here we are...terra incognita..."boldly going where no man has gone before" as one Captain James Tiberius Kirk once uttered. Whether this grand fiat currency experiment works as planned...or ends in catastrophic failure...gold and silver will be much higher in price regardless, and I continue to urge you to buy and take possession of as much of the real thing as possible!

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.