From Ed Steer:

As I mentioned in my closing comments yesterday, gold hadn't done much in Far East trading and early London trading...but I also mentioned that this would change as the day wore on in London...and certainly once the Comex opened. Well...I was right about that...unfortunately.

The jobs numbers hit the tape at 8:30 a.m. in New York and the U.S.$ headed south and the precious metals headed north...for about five minutes. Then it was obvious that the President's Working Group gave the order and the dollar went straight up...and gold and silver went straight down. Nothing free-market about that. From the lows at the London p.m. gold fix, gold and silver made rally attempts...but both got squashed...and were bashed further in electronic trading once the floor trading session was over. The Kitco gold chart tells all.

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Open interest numbers for Thursday's big rally were no surprise. Gold o.i. jumped another 5,776 contracts to 401,699 [the highest open interest since August 6, 2008]...and volume was a healthy 124,373 contracts traded. Silver had a huge o.i. jump...up 3,101 contracts to 109,274...with another big volume day of 38,654 contracts. Ted says that the rollover into the July contract [and later months] is already on in earnest, so that's the reason why there have been big increases in silver trading volume this week.

The Commitment of Traders report showed that there was only minor deterioration in silver's [Commercial] net short position by JPMorgan et al...as they only increased their net short position by a measly 195 contracts. Ted and I were both expecting much worse...so it's plain that 'da boyz' do not want to short the silver market any more than they have to. The Commercial net short position is roughly 43,000 contracts...215 million ounces. The '4 or less' traders [bullion banks] in the Commercial category are short 47,700 contracts...238.5 million ounces of silver...more than 100% of the entire net short position in silver. These '4 or less' traders have been more than 100% net short the Commercial category of the COT silver market since July 29, 2008.

The deterioration in gold was worse than awful. The Commercial [all bullion banks] net short position increased a whopping 18,385 contracts. They are now net short 22.65 million ounces of gold. '4 or less' bullion banks in this Commercial category are short 17.7 million ounces of that. This is monstrous and grotesque.

To give you a further idea of how unbelievable this is, the Bank Participation Report for May came out at the same time as Friday's Commitment of Traders report...with the same cut-off date...the end of trading this past Tuesday, so we can compare apples-to-apples. Of the above 22.65 million ounce short position that the bullion banks have in gold, '3 or less' U.S. bullion banks are net short 12.3 million ounces of that...more than15% of world mine production. This is a new record high. And to show you how much the U.S. bullion banks dominate the world's gold market, the report states that twenty-one [21] 'Non-U.S. banks are only net short 410,000 ounces of gold between all of them!!!’

In silver, two [or less] U.S. bullion banks are net short 27,500 contracts...137.5 million ounces. The Bank Participation Report shows that twelve [12] Non-U.S. banks are net long the silver market by 5,200 contracts...26 million ounces!!!

Ted Butler says, and I totally agree, that this has to be resolved...one way or another. The bullion banks are either going to get overrun with a huge short position on in both metals...or they're going to smash gold so they can beat the living snot out of the silver price. Unfortunately...as both Ted and I have already gone on record as stating...the end result will most likely be the latter, not the former. We figure that it will be quick and ugly. Very ugly. We'd both LOVE to be proven wrong on this one...but past history [with the COT in this configuration] is not on our side. Sorry!

In other gold news, there were no changes at the U.S. Mint. The SLV ETF did not change, but there was a minor drop of 11,250 ounces at GLD. Over at the Comex-approved warehouses, there was an increase in silver stocks of 619,565 ounces. Friday's Comex Delivery Report showed that another 456 contracts in gold were delivered...as were 11 silver contracts.

Taking a look at crude oil for a moment, the decline in crude oil prices that began in mid-2008 was historic...plunging over $90 barrel in just eight months. Over the past four months however, crude oil prices have spiked up nearly $30 per barrel. Today's chart provides some perspective on the historic decline and recent spike, with a long-term view of inflation-adjusted West Texas Intermediate Crude. The chart illustrates that most oil price spikes were a result of Middle East crises and often preceded or coincided with a US recession. It is also interesting to note that the recent spike in oil prices has brought the price of oil back to a relatively high level...a level that was surpassed only during the major price spikes of 1979-1982 and 2005-2008. I thank P.S. for this information.

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I only have a couple of stories today...the first is from Liberty Dollar founder Bernard von NotHaus. He reports that he and three associates in the Liberty Dollar operation were arrested by federal agents this week, as the U.S. government began to prosecute them criminally for issuing the gold and silver Liberty Dollar currency. Fortunately the arrests were civilized and now the issue may be determined in court with some degree of due process of law and some chance of restoration of limited government. You can find von NotHaus' account of the arrests here.

In a story posted at Russian website rian.ru, Russian President Dmitry Medvedev said "the structure of the global currency system would inevitably change with the increasing role of regional reserve currencies, and called for a reassessment of the potential role of gold in the global currency system." The story is headlined "Role of gold in Russian reserves could increase - Kremlin"...and the link is here.

One of my readers, Dave Delve, sent me the following...and it's oh so true. "See what happens if you sleep around...it's always the kids that suffer!" The photo below tells all.

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The proud American will go down into his slavery without a fight, beating his chest and proclaiming to the world how free he really is. The world will only snicker. - Stanislav Mishin, pravda.ru, 01 June 2009

Today's 'blast from the past' is 115 years old. This piece of music was so popular at the time of the opera's premiere in Paris on March 16, 1894...that it already existed in transcription for eight different musical instruments. It symbolizes the moment when Thais, a courtesan in 4th century Alexandria, converts to Christianity under the influence of the monk Athanael. The opera has long been forgotten, but this composition lives on in the concert halls of the word, and is one of the most beautiful pieces of music ever written for violin and orchestra. When it's played, there isn't a dry eye in the place when the soloist and orchestra are done. Here is violinist Sarah Chang with the Berlin Philharmonic...under the baton of Placido Domingo. Turn up your speakers and click here.

Friday's activity was vintage gold cartel. Virtually without fail, they always hit the gold price after a lousy jobs report. This time was no exception. This time they ramped the dollar as well, as it was heading south too. The economic news in the last couple of days has gone from bad to worse...retail sales are down almost everywhere, the American Trucking Association reports tonnage down again, the Association of American Railroads reported that "U.S. rail carload traffic in May 2009 fell 24.7% year/year"...the worst y/y decline of the recession. Plus the U.S. Treasury department said it has another $127 billion worth of paper to sell next week. Everything is fine!

The gold and silver markets should be interesting when they open for business on Monday morning...which is late Sunday night here in North America.

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