From Ed Steer:

The Far East gold market on Friday morning was another yawner. The top in gold for the day was shortly after London opened for trading...and a smallish rally on the Comex around the London p.m. fix was all the excitement there was in New York trading. By the time the doors closed in electronic trading at 5:15 Friday afternoon, gold was down $10 on the day. Here's the usual N.Y. commentator's take on yesterday's action..."An effort to rally in early Comex trading was quickly repressed--53% of the day's volume traded by 10 a.m. More revealing, however, was the 22% leap in estimated volume associated with the last half-hour of Comex actitivy. 18,345 lots traded in an effort to establish a lower close...without success. Subsequently, in the after-market, gold was driven down by more than $5, with world gold getting as low as $890. Why would a proceeds-maximizing seller act like this before a weekend? It created an interesting issue for The Gartman Letter which said this morning that it would sell its entire gold position...'should spot gold trade down below $894...and do so for an hour.' Estimated volume was 100,905 contracts, with a switch effect of 2,840 lots."

With a little more volatility in price, silver traded in lock step with gold. In the end, it too, finished nearly on its lows of the day...and certainly on its low of the week. The precious metals stocks got slaughtered.

Thursday's open interest report showed that gold o.i. dropped 7,014 contracts to 358,070. In silver, the o.i. actually rose 327 contracts to 93,900.

As far as the Commitment of Traders, I must admit that I was not a happy camper. In silver, the bullion banks [Commercials] reduced their net short position by a very small 498 contracts...but in the Non-Commercial category, the tech funds reduced their long position by 479 contracts and actually went short another 1,665. This is an 'improvement' from last week's COT...and the numbers for silver represent almost 'the bottom of the barrel'...and a total clean-out of the speculators. Actually, I was expecting better...especially in the Commercial category. Ted Butler told me to take a pill. The full colour COT graphic is linked here.

In gold, Ted and I were in total agreement. It was negative. We were both expecting a modest improvement. Well...we didn't get it. In fact, there was a slight deterioration as the bullion banks [Commercials] went even shorter...and the speculators in the Non-Commercial category went longer. The bullion banks added 637 contracts to their net short position, while the speculators went net long an additional 2,932 contracts. Not what we wanted to see at all. The full colour COT graph for gold is linked here.

Without question, the COT numbers have improved since the cut-off on Tuesday at the close of trading. But along with that 'improvement' is the associated decline in the gold/silver price...as the speculators/tech funds in the Non-Commercial category puke up their longs as the bullion banks engineer the price lower; and either cover their own short positions...and/or go long themselves. As of Tuesday, the bullion banks were net short 18.2 million ounces of gold. Butler says that he can't remember the last time that the '8 or less' traders were net short such a huge amount of gold...but it was a very long time ago. This is not bullish.

As I've said off and on over the last few weeks, and Ted and I discussed this week, there is nothing standing in the way of the bullion banks driving the price down to below the 200-day moving average...which is currently at $862...and 'ringing the cash register' while they harvest all the tech longs they can. How far could the price theoretically go down? Don't know...but Ted figures that there's between 65-70,000 tech fund long contracts that could be harvested if JPMorgan and HSBC USA really put their minds to it. Here's the 3-year gold chart with both the 50-day and 200-day moving averages.

click to enlarge

There's no question in my mind [and Ted's] that if the bullion banks drive gold down, they will certainly hammer the hell of silver as well...as this is still the centre of the universe for them. But are they going to do it? Can they do it? Don't know, but the last four days of declining gold and silver prices [to new lows for this move] have turned me negative in the short term. What makes it even more difficult to call is the huge dichotomy that exists between the gold and silver COT reports at the moment. Silver is very bullish...almost wildly so...while gold is extremely bearish.

In other gold news yesterday, I see in a story posted by the Press Trust of India, that the IMF has clarified its future bullion sales plans....they said "there have been no talks about selling more gold than the 403.3 metric tons proposed a year ago." And in a Bloomberg story..."Gold may rebound next week on speculation rising prices will revive demand for the precious metal as a hedge against inflation. Twelve of 17 traders, investors and analysts, or 71%, surveyed by Bloomberg News said gold would climb. Four people, or 24%, forecast lower prices and one was neutral."

There were 346 gold contracts delivered on the Comex yesterday. Deutsche Bank was the big issuer [322 contracts] and the Bank of Nova Scotia and JPMorgan were the biggest stoppers with 171 and 125 contracts respectively. Twenty contracts were delivered in silver. Over at the Comex-approved silver warehouses, there was another huge drop in silver inventories as 2,015,645 ounces were taken off the exchange. This is the third day in a row there have been big declines. I wonder if some of that was counted as inventory received over at the SLV ETF yesterday, as they reported an increase of 3.8 million ounces. GLD was unchanged.

While the stock market has rallied nicely since bottoming on March 9th, the economy continues to struggle. For some perspective on the current economic recession, today's chart illustrates the duration of all U.S. recessions since 1900. You will note that the five longest recessions all began prior to 1930. The length of the current recession [now entering its 16th month] is above average and equal to the longest recessions [1973 & 1981] since the Great Depression.

click to enlarge

Since it's the weekend, I've got lots of stories that I hope you will find of interest. The first is by Hugo Salinas Price, president of the Mexican Civic Association for Silver. In his new essay, "Consensus and All That Rot," Hugo says that there will be no muddling through the world financial crisis, just a resolution when some country with a trade surplus in ever-depreciating dollars has had enough and insists on gold in payment. The essay is linked here.

In a Reuters story is the following headline..."Banks could bet on toxic assets with taxpayers' money"..."U.S. banks that received billions of dollars of taxpayer money to bolster their capital could place bets on the same toxic assets that got them into trouble in the first place -- and with government support." Needless to say, there are voices raised in alarm against this possibility. The link is here.

One of the regular speakers at the Cambridge Conference gold shows here in Canada over the last ten years, has been my friend Ian Gordon, publisher of the Long Wave Analyst newsletter. This past week he was interviewed by the Globe and Mail in Toronto. Here is the GATA press release entitled "Ian Gordon on the world economy and gold". It contains both the interview...and a subsequent panel discussion. This is a very worthwhile read. The link is here.

The next commentary is from Eric Sprott and Sasha Solunac of Sprott Asset Management in Toronto. In his March edition of "Markets at a Glance", Eric asks the question..."Does 'Backed By Government' Really Mean Anything Anymore?" As I've said before, Mr. Sprott is not one to mince words nor suffer fools gladly, and since he has a few dollars in his pocket, I have a tendency to listen carefully to whatever he has to say. I would suggest you do the same. The link to the pdf file is here.

And lastly is this story from investmentnews.com. It bears the ominous headline of "First U.S. citizen arrested in UBS tax evasion case". What makes it even more ominous is that it involves US$2 million in gold Krugerrands. Are currency controls and the international ownership of precious metals for U.S. citizens going to be casualties in this case? I don't know, but I wouldn't wait around for the decision. The link is here.

The market can stay irrational longer than you can stay solvent. - John Maynard Keynes

Today's 'blast from the past' is from the 1970s. I considered her to be one of the best female vocalists of all time. I still play a lot of her music at home...and still remember spinning her 45s on CHAR Radio in Alert, North West Territories here in Canada more than 30 years ago. I hope she's resting in peace. The link is here.

So...where to from here, in the next few weeks? As I mentioned at the beginning, I'm short-term bearish on gold, now that the price has 'broken down' below the upward trend line that began around mid-November last year. But I'm still ultra-bullish long-term for both silver and gold. Like you, I'll wait [with some fear and trepidation] to see what develops in the days and weeks ahead.

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.