From Ed Steer:

Both gold and silver had short, sharp rallies once Globex trading began in Sydney on Friday morning. Both were sold off immediately. However, at 1:00 p.m. in Hong Kong [midnight in New York] a serious rally began which really accelerated to the up-side at 11:00 a.m. in London while North America slept. The rally ended at 9:00 a.m. in New York...shortly after floor trading began on the Comex. From there, both metals got sold off [for an hour] into the London p.m. fix [3:00 p.m. London - 10 a.m. New York]. Once the London gold fix was in, away they went again, with both metals being sold off hard once the gold price went vertical through $1,000...which occurred shortly before 1 p.m. in New York. Once that happened, profit taking dropped both metals back. Estimated volume on Friday was 152,368 contracts...with a switch effect of 9,898 lots.

Here's the 2-year gold chart. The RSI is at 72.5. Overbought to be sure...but the RSI has been much higher than that before 'correcting'.

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For whatever reason, the HUI sold off starting about 1:45 in the afternoon...long after $1,000 was broken to the upside...and right in the middle of a huge [and rather suspicious looking] rally on Wall Street. I said earlier this week that I had been underwhelmed by the performance of the precious metals equities. Here's the 2-year chart of the HUI. The gold price is basically back where it was in mid-March of 2008. But the HUI needs to tack on gains of about 60% to get back to where it was the first time gold was over $1,000. Right now it's struggling to stay above its 200-day moving average. But the RSI shows that it's nowhere near being overbought.

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Thursday's decline in price in both gold and silver brought a fairly significant decline in gold open interest...and almost no change at all in silver. Gold o.i. fell 7,286 contracts to 358,829. Silver o.i. declined an insignificant 92 contracts to 99,600 contracts.

The Commitment of Traders report [for positions held at Feb. 17] was not as bad as either Ted or I had expected...although there was deterioration in both gold and silver once again. In silver, as always, the bullion banks went short against all longs. They increased their net short position by 1,014 contracts. Everyone else in the other two categories went net long. The Non-Commercials went net long another 595 contracts while the small traders in the Nonreportable category went net long 419 contracts...[419+595=1,014]. In gold, the bullion banks went net short 7,648 contracts...against the Non-Commercials and the Nonreportables...who went net long 2,299 contracts and 5,349 contracts respectively.

So, as of Tuesday, the bullion banks were net short 180,255,000 ounces of silver...and in gold, the same bullion banks were also short 19,636,000 ounces of gold. Since the Tuesday cut-off, these net short positions have probably increased in size. The most obscene thing about these two numbers is that the lion's share of them is held by '2 or less' U.S. bullion banks...certainly JPMorgan, and probably HSBC USA. The current COT can be found by clicking here.

Here's what Ted Butler had to say about the COT report issued yesterday..."With gold COTs negative and silver positive...[relatively speaking! - Ed]...it would appear it would take a gold sell-off to knock silver down. Interestingly, the only time I remember a similar set up, was the fall of 2007, where gold didn't sell-off for six more months and silver added 8 bucks or so before topping. But having said that...anything can happen here."

February deliveries in gold continued, with another 680 contracts delivered yesterday. The two big issuers were Deutsche Bank and Bank of Nova Scotia...with the big stopper being Goldman Sachs.

I neglected to report Thursday's happenings with the SLV and GLD ETFs. There were increases in both. GLD was up 157,000 ounces to a bit over 33 million ounces...and SLV was up 591,000 ounces to 253.7 million ounces. Yesterday, there were no additions to GLD, but the SLV reported receiving another 4.3 million ounces, bringing the grand total up to 258.0 million ounces...now over 8,000 tonnes! Ted Butler feels that the SLV is still owed at least 20 million ounces...and the GLD another million ounces. I thank Gene Arensberg for the graph below.

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The usual N.Y. commentator had these remarks yesterday..."Reuters reports 'extremely active' trading in the December $1,200 call option and one very astute observer points to a large open interest having built up in this year's calls between $1,000 and $2,000."

In other news, I see in a Bloomberg story that GM has thrown its SAAB subsidiary to the wolves and it's currently in bankruptcy protection in its home country of Sweden. The Swedish government has made it quite clear that it won't put a penny of taxpayer money in it. And in a comment posted at creditwritedowns.com, it appears that Citigroup is cutting back on all international lending. And talking about 'C'...the rumours are swirling that the goverment is going to nationalize them...and maybe BAC as well. Poor AIG closed at 54 cents yesterday...and GM had a market cap under US$1 billion for a while...and JPMorgan shares are under $20. Needless to say, the banking index took another hit yesterday. And lastly, in another Bloomberg story, the headline read "Jumbo Loan Defaults Rise at Fast Pace as Rich Suffer". It appears that "luxury homeowners are falling behind on mortgage payments at the fastest pace in more than 15 years, a sign the U.S. financial crisis that began with the poorest Americans, has reached the wealthiest."

It's hard to believe, but I only have one story today! Sure, there were lots of stories available, but nothing from the 'front lines' so to speak...except for this one. It's from The Telgraph in London and the author is, as usual, Ambrose Evans-Pritchard. The headline reads "Ken Rogoff says Fed needs to set inflation target of 6% to help ease crisis"..."Rogoff admits that his policy is fraught with danger because it could lead to an overshoot down the road, 'ending up with 200% inflation'. But there may be no choice at a time when the financial system is 'melting down'." The link is here.

I agree to this Constitution with all its faults, if they are such, because I think a general government necessary for us, and there is no form of government but what may be a blessing to the people if well administered, and believe farther that this is likely to be well administered for a course of years, and can only end in despotism, as other forms have done before it, when the people shall become so corrupted as to need despotic government, being incapable of any other. - Benjamin Franklin, speaking on the last day of the Constitutional Convention in 1787

After last week's time travel back to the middle of the 18th century...today's 'blast from the past' returns us to the latter part of the 20th century. Here is Olivia Newton John and the ELO in an old chestnut from 1980. Turn up your speakers and click here.

The Dow had another 'miracle' again yesterday afternoon. With the chart showing signs of breaking below 7,000...it's clear [at least to me] that the President's Working Group wasn't about to let that happen on a Friday...so they stepped in. Even the venerable Richard Russell has now expressed deep suspicions about what's happening...and rightly so. The longer they drag this out, the longer the pain will last. But in the end, it matters not...because the market will have its way no matter what they do.

Enjoy the rest of your weekend and I'll see you on Tuesday morning.

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