From Ed Steer:


Well, the bottom for gold on Wednesday was about 2:00 p.m. in Hong Kong...1:00 a.m. in New York. From there it rose in fits and starts until the Comex open...where it got sold off for about an hour or so. Then, at precisely 9:00 a.m., away it went to the upside...until it ran into some opposition at the London p.m. fix [3:00 p.m. London...10:00 a.m. New York.] The London close occurred an hour later...and that was obviously it for the day. Volume was extremely heavy...170,000 contracts were traded...and that's net of what few switches there were.

The silver chart was almost a mirror image of its golden cousin...with the top silver price coming at the close of London trading.

The open interest number for gold on Tuesday was a big surprise. Even though gold rose about $18 on that day, there was actually a decline of 99 contract in open interest to 350,858. I would bet dollars to donuts that a whole pile of shorts got covered by the 3 [of less] U.S. bullion banks...and that the subsequent decline in open interest was hidden by an equal purchase of longs by the same group. Very clever. I hope it's in the Commitment of Traders report tomorrow. Gold's open interest number for Wednesday's big gain should be educational when it becomes available later this morning. Silver's nice gain on Tuesday resulted in an increase in open interest of 1,113 contracts...bringing the total silver o.i. up to 96,019 contracts.

The precious metals shares were on fire yesterday with the the HUI up almost 8%. The 'golden cross' of the 200 day m.a. by the 50-day m.a. in gold was like a hot knife through soft butter. The P&F chart for gold is a sight to behold...with a 'Double Top Breakout'. Target price...$1,060.

click to enlarge

In yesterday's commentary I mentioned that there were still about 3,000 contracts to be delivered against in February...physical delivery. Judging by the e-mails I received on this, I should have made myself a little clearer. First of all, I was talking about gold...not silver. Secondly, very little [if any] of this gold will be removed from the designated Comex warehouses involved. When I talk about 'delivery', I'm talking about the gold bars just changing ownership. The metal never leaves the exchange. A computer entry is made, and 'x' number of ounces are 'issued' by one [or more] firms and received or 'stopped' by one [or more] firms. The receivers [or 'stoppers'] make a computer entry that they have it...and the Comex warehouse[s] involved makes due note of both transactions. The bars involved never moved. Yesterday there were 300 contracts delivered in gold. There were two 'issuers'...Prudential Bache [110] and Triland [190]...and six receiving firms ['stoppers'] who received these 300 contracts between them. In silver, there were 75 contracts 'issued' by two different firms and 'stopped' by three other firms. Here's the pdf file from the CME so you can follow along at home if you wish. Click here.

In other gold news...and there's quite a bit...I see that a new high price in gold will soon be set. The reason that my confidence level is high is because, in a Reuters piece yesterday, the IMF came out with the same old story that they're going to sell 403 tonnes of gold...someday. [Note to IMF: Give it up guys...as that dawg don't hunt no mo'... - Ed] A Bloomberg headline reads "McEwen, Goldcorp Founder, Bets Crisis Will Drive Gold to $5,000"..."Bullion will more than double to $2,000 an ounce by the end of next year before rising to McEwen’s target by the end of the cycle, which could take an additional four years, the investor said." The usual N.Y. commentator had the following..."Yesterday, the weekly ECB [European Central Bank] statement of condition reported an €6 Million (0.3 tonnes) fall in “gold and gold receivables”, attributed to a sale by one of the captive CBs. Last week there was a 0.05 tonne rise, attributed to a gold coin purchase. Such a small change raises the possibility that some option sale was triggered, possibly from long ago." [What this means is that neither the European Central Bank...or any if its captive central banks...have been selling gold at all this year. Under WAG2, they're allowed to sell, on average, 9.7 tonnes/week. They haven't sold 9.7 tonnes since the beginning of the year! - Ed] It was reported over at lemetropolecafe.com last night that "Visionary economist Ed Yardeni, considered to be one of the top economists on Wall Street, said on Kudlow on Tuesday nite that gold should be in portfolios...he only mentioned gold and energy stocks." And lastly...I note that a rather largish 2.7 million ounces of silver was added to Comex warehouse stocks yesterday...all of it into HSBC USA.

Over at the GLD ETF...another stunning amount of gold was added yesterday....40.37 tonnes! This "addition of gold by GLD is the second largest one-day addtion to GLD after the July 8, 2008 addition of 45.99 tonnes." And yesterday's gigantic volume in GLD shares virtually guarantees that a very large number of tonnes of gold will be added in the coming days/weeks. The SLV had pretty big volume yesterday as well. Nothing was added to SLV yesterday. Is that because the just don't have it to add? Just asking. I thank Gene Arensberg for the quoted info...and the up-to-date GLD chart.

click to enlarge

In other news, I see in a Bloomberg story on Tuesday that "China should seek guarantees that its $682 billion holdings of U.S. government debt won't be eroded by ‘reckless policies,’ said Yu Yongding, a former adviser to the central bank." Then less than twenty-four hours later is a story in the Financial Times that says "China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its ‘only option’ in a perilous world, a senior Chinese banking regulator said on Wednesday." And lastly...a couple of must watch videos. If I hadn't seen them, I wouldn't have believed something like this was possible...even in the USA. It boggles the mind. The first is a CNBC clip from the Madoff hearings. Barry Ackerman (D-NY) rips the SEC folks a new one. Click here. The second is the Congressional Hearings on the big banks. Rep. Michael E. Capuano (D-Mass) does a masterful job "raking over the coals" the CEOs of the major US banks. Click here.

Today's first story is from The Telegraph in London. The headline reads "European banks' toxic debts risk overwhelming EU governments." I had a piece about that in my rant yesterday. Apparently some confidential memo got leaked to the press in Europe. The situation is totally out of control. The link is here.

The next story is from Bloomberg. The headline reads "King Says U.K. in Deep Recession, Pledges More Easing"...[Bank of England Governor] King went on to say...""Further easing in monetary policy may well be required. That is likely to include actions aimed at increasing the supply of money in order to stimulate nominal spending." [Basically King is prepared to cover the country with freshly printed money starting next month. - Ed] The link is here.

The next story is from Reuters and filed from Moscow. Russia's biggest bank has made note of the gold demand. The headline reads "Russia Sberbank gold sales jump during crisis" and the link is here.

And lastly comes the February commentary of John Embry, chief investment strategist at Sprott Asset Management in Toronto. The article...written for Investor's Digest of Canada...is entitled "Obama team may not be friendly to gold". The link...a pdf file...is here.

click to enlarge

Maybe Kinross et al will create value but they're handicapped by their predilection for financial engineering as opposed to mining engineering. - Fabrice Taylor, Globe and Mail, January 30, 2009

So Mervyn King admitted yesterday that he was about to sacrifice the prudent on the altar of the wanton. That's about to happen big time in every country in the world starting about now...and that's what the rising gold price is telling us. So hang on tight, because the next phase of this bull market is going to be a wild one.

See you Friday.

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