From Ed Steer:

Gold slid about four dollars between the Globex open on Thursday night and around 10:00 a.m. in London on Friday morning. From there, gold quietly rallied about $11...with the peak coming shortly after 9:00 a.m. on the Comex in New York...and that was it for the day.

Silver was a different animal altogether. After sliding about a dime in Far East trading, silver also began its climb starting around the same time as gold in early London trading...and by the 8:30 a.m. on the Comex...it had tacked on 40 cents. That was obviously too much strength for somebody in New York, as the rally got squashed, and half that gain disappeared.

The HUI peaked about the same time as the gold price in New York and closed quietly positive in pre-long weekend trading. But having said that, please don't think that yesterday was a quiet trading day. Far from it. Here is what the usual New York commentator had to say..."At around 4:30 a.m. NY time, world gold began a move which carried it up some $11 intraday (and on the day) shortly after 9 a.m. NY. Massive selling eventually contained this – 82,304 lots were estimated to have traded by 10 a.m. – but the Bears were apparently not brave enough to try developing much downside momentum and June gold closed the floor session up $7.70. Estimated volume was 124,898 contracts." This is big volume for such a small price change...especially the day before a long weekend. Normally, trading volume disappears on a Friday like that. Not this time.

Thursday's changes in gold open interest were big...but not quite as big as I had expected. Gold o.i. rose another large chunk...10,987 contracts to 390,923. The gold buyers are running into serious opposition. Volume was even larger than I reported...172,610 contracts. In silver, there was only an increase of 377 contracts to 96,096, on a rather chunky volume of 19,656 contracts.

The Commitment of Traders report [for positions held at the end of trading on Tuesday, May 19th] was awful. In gold, the U.S. bullion banks went short against all comers...adding another 11,885 contracts to their short position. They are now net short 18.3 million ounces of gold...and to make matters worse, both Ted and I agree that there has been a further deterioration of at least another 3 million ounces [30,000+ contracts sold short] in the three days since the Tuesday cut-off for this COT report. This is the worst COT report for gold since before the commodities 'crash' that began after the July 2008 long weekend. This is a screaming danger signal. The biggest net short position that I can ever remember seeing was about 25.6 million ounces. There's nothing to say that this condition can't persist for a while longer...but it has [in the past] always ended exactly the same way...and that's badly. Please re-read my Friday rant for further clarification, as I do not wish to repeat myself here.

Silver was an even bigger disappointment. Here, the bullion banks also went short against all comers as well. This time it was to the tune of 4,496 contracts. There has been huge deterioration in silver in just the last three weeks. However, since the Tuesday cut-off for this COT, it appears that the big shorts have been going out of their way not to add to their silver short positions...and are keeping the price contained with as little shorting as possible. That's why we've seen such big run-ups in price with such small volume...and open interest changes. Friday's silver price run-up, Thursday's open interest numbers [above] and Wednesday's o.i. numbers from my rant yesterday and Wednesday, clearly shows this. Frankly, I don't know what to make of it...but I expect we'll find out soon enough.

Options expiry for the June contract in both gold and silver is May 26th...next Wednesday. I'll be ready for anything when the gold market opens in New York on Sunday night at 6:00 p.m.

In other gold and silver news, the Comex Delivery Report for Friday showed that 40 gold contracts and 39 silver contracts were delivered. Month-to-date there have been 1,482 gold contracts delivered and 3,854 silver contracts delivered. There were no reported changes from the U.S. Mint on Friday...but there was activity in GLD, where it was reported that 13.14 tonnes [422,400 troy ounces] were added to their alleged gold holdings. SLV reported no changes. Ted figures they're owed somewhere in the 15 million ounces range. Over at the Comex-approved warehouses, silver inventories went up another truck full...605,851 ounces.

A week ago, I ran a chart that illustrated the current plunge of S&P 500 earnings...over 90%. Click here. Today's chart illustrates how this plunge in earnings has impacted the current valuation of the stock market as measured by the price-to-earnings ratio [P/E ratio]. Generally speaking, when the P/E ratio is high, stocks are considered to be expensive. When the P/E ratio is low, stocks are considered to be inexpensive. From 1936 into the late 1980s, the P/E ratio tended to peak in the low 20s [red line] and trough somewhere around seven [green line]. The price investors were willing to pay for a dollar of earnings increased during the dot-com boom [late 1990s] and the dot-com bust [early 2000s]. As a result of the current plunge in earnings and the recent 2.5 month stock market rally, the P/E ratio has spike to the low 120s...a record high. Note the graph below. I thank P.S. for sending it along.

click to enlarge

Today's first story is from the Los Angeles Times. In it, L.A. Times financial columnist, Tom Petruno, flat out states that the Fed is manipulating the treasury market...and even puts it in bold type. Everybody knows that this is happening...and in the equity markets too...but there are those that still believe that the U.S. government would never rig the gold and silver markets as well. The article is headlined "Why Wall Street is deserting Treasuries and the dollar". The link is here.

It's been a week or so since I've run a piece by Ambrose Evans-Pritchard from The Telegraph in London. I have one here entitled "Britain looks to the land of the rising sun with envy". I get the impression that Ambrose is indulging in a little 'whistling past the graveyard' in his opening paragraph...but other commentators imbedded in the article are not as optimistic. I hate to use the phrase "this time it's different"...but England is not Japan, and I expect that the monetary situation in England will go from bad to worse. I thank Craig McCarty for sending me the story, and the link is here.

The next story is from the Ludwig von Mises Institute. The title to the commentary is pretty self-explanatory..."Obama to Government Motors: ‘Let's Roll’.” I thank P.S. for sending it along and the link is here.

I'll close today's list of stories with one that was posted over at Kitco. It's an article from Business Intelliegence: Middle East. The headline reads "South Africa gold coin demand hits all time high"...and the link is here.

The koala photo I ran yesterday was a hit. Here's another photo of how hot it was in Australia in January. Once again I thank Paul Bowman for sending it along. Click on the photo below.

click to enlarge

The reaction of the central banks to rising gold -- Keep it down, knock it down, flood it with shorts, talk it down, manipulate it down, scare it down by announcing coming large sales of gold. The outstanding features of the market today were a sinking dollar, fading bonds, and the persistent rise in gold. It's interesting that as gold rises daily, there's surprisingly little attention directed at its impressive action. - Richard Russell, 22 May 2009

Today's blast from the past is 44 years old. How is that possible? Where the hell did the time go? It's so old that the video is in black and white. I'd forgotten about this group, and I thank Kevin Cassidy for jogging my memory. A quick search over at youtube.com produced the necessary result. Turn up your speakers and click here.

So...what happens now? Despite all the happy talk on CNBS...the economic, financial and monetary condition of the U.S. [and the world] is deteriorating by the day. The U.S. dollar, bond market and Dow are on the brink...gold and silver are quickly approaching overbought, the COT sucks...and the HUI is [by all historical standards] overbought. How all this will resolve itself is the great unknown...but I doubt we'll have to wait very long to find out.

Enjoy the rest of your weekend...and because of Memorial Day in the U.S.A., there will be no Casey's Daily Resource Plus until Wednesday morning...so we'll see you then.

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