The gold price didn't do much in initial Far East trading on Friday morning, but by 11:30 a.m. Hong Kong time, the gold price was up nearly twenty bucks. That proved to be the high of the day...and from there the price declined into the London a.m. gold fix at 10:30 a.m. BST...which is 5:30 a.m. Eastern.

At that point the price flat-lined...and the 8:30 a.m. Eastern time spike when the jobs numbers were released, got sold off immediately. Then, at 12:15 p.m. for reasons unknown to me, a not-for-profit seller came along...and within an hour had sold the price down about $25. The low of the day came around 1:10 p.m. in the New York Access Market. The subsequent rally regained about half that loss. Gold finished down $11.60 spot on the day...and volume was pretty light at 122,000 contracts.

The silver price path was very similar to gold's, except the price spike at the release of the jobs report was much more pronounced...and that spike [up to $32.94 spot] proved to be the high of the day. From there, silver's price path was virtually identical to gold's...including the not-for-profit seller's arrival at 12:15 p.m. Eastern.

Silver finished down 66 cents on the day, closing at $31.27 spot. Net volume was also pretty 'light' at 39,000 contracts.

The gold stocks gapped up about a percent at the open of the equity markets, but came under immediate selling pressure. The HUI spent virtually the entire day in the red...and there is almost no hint of the 12:15 p.m. twenty-five dollar drop in the gold price anywhere on the HUI chart. The HUI finished down 2.36%.

With the silver price down a bit more than 2%, it was no surprise that the shares finished down as well. Nick Laird's Silver Sentiment Index closed down 3.04%.

(Click on image to enlarge)

The CME Daily Delivery Report was a yawner, as only 9 gold and 4 silver contracts were posted for delivery on Tuesday.

There was no reported change in GLD yesterday...and a smallish increase of 486,710 troy ounces was reported in SLV.

The U.S. Mint had a decent sales report. The sold another 9,000 ounces of gold eagles...and 400,000 silver eagles. Month-to-date [which is only five business days old] shows that 23,500 ounces of gold eagles...5,000 one-ounce 24K gold buffaloes...and 1,662,000 silver eagles have been sold.

The Comex-approved depositories did not receive any silver on Thursday...and reported shipping out 597,617 troy ounces. The link to the action is here.

Yesterday's Commitment of Traders Report was a big surprise in both metals. The big surprise in silver was that there was another huge drop in the Commercial net short position. This time it was a chunky 5,339 contracts, or 26.7 million ounces. The Commercial net short position is now down to 94.6 million ounces of silver. I don't remember the last time that this number was below 100 million ounces...but I'm sure it's pushing ten years ago.

As of the cut-off on Tuesday, the '4 or less' Commercial traders are now short 150.1 million ounces of silver...and the '5 through 8' are short 45.0 million ounces. The total short position of the '8 or less' adds up to 195.1 million ounces, or 39,020 contracts

To show you how extreme this Commitment of Traders report is this week, the total Commercial short position in silver sits at 58,500 contracts...and the above 39,020 contracts held short by the '8 or less' traders represents 66.7% of that total Commercial short position in the Comex futures market. If that isn't a concentrated short position, I don't know what is...and the SEC and CFTC say nothing...and do nothing.

In total, there are 39 traders that hold short contracts in the Commercial category. The '8 or less' hold 66.7% of that short position...and the remaining 33.3% [19,480 contracts] is held by the other 31 traders...Ted Butler's raptors. On average, this translates into 628 contracts held short by each of these traders.

I would bet a fair amount of money that virtually all the remaining 19,480 short contracts are the short side of a spread trade within the Commercial category. The '8 or less' Commercial traders are the Commercial category!!!

In gold, the big drop in open interest all last week did turn out to be mostly spread trades as Ted Butler said they might be. The open interest also fell because of gold deliveries on the first two days of the October delivery month. Don't forget that a delivery of a metal contract by a short to a long holder, fulfills the contract...and the open interest declines by the number of contracts delivered.

The Commercial net short position in gold declined by a smallish 1,932 contracts...or 193,200 ounces. This is barely a rounding error. Total open interest declined about 28,500 contracts as the spreads were lifted and deliveries made.

The Commercial net short position now stands at 16.5 million ounces of gold.

As of the Tuesday cut-off, the '4 or less' traders are short 15.3 million ounces...and the '5 through 8' traders are short 4.3 million ounces. These eight traders are now short 19.6 million ounces, or 118.8% of the entire Commercial net short position in gold. In silver, the '8 or less' traders are short 206.2% of the entire Commercial net short position.

Ted Butler said that the raptors are now long about 20,000 contracts in silver and about 31,000 in gold. On the next price rally they will be selling for a profit...and that will certainly subdue the price pattern. It will be interesting to see who the buyers are. Maybe it will be the Commercial shorts, which are mostly bullion banks. We'll see.

Pretty pictures of the COT reports for both gold and silver for the last year can be found linked here for silver...and here for gold. It will be more than worth your while to spend some time on them.

A derivative of the data used for yesterday's COT report is the Bank Participation Report. It shows the long and short position of U.S. and foreign banks in all commodities that trade on the Comex. This BPR is generated once a month from COT data from the first Tuesday of the month. The COT report appears from this data on Friday, as does the BPR. So, once a month, we can compare apples to apples.

In the September report, two U.S bullion banks were short about 23,900 Comex silver contracts. In the October report [from last Tuesday's COT data] the two U.S. bullion banks had reduced their Comex short position down to 14,400 contracts...an absolutely stunning one month reduction of 9,500 Comex contracts! That's a reduction of their Comex short position by 40% in just one month!

The 12 non-U.S. banks that hold silver positions on the Comex have held a tiny net long position of about 300 contracts for the last couple of months. Their small net long position was virtually unchanged from the September report to the October report.

So let's put this in perspective. As of the Tuesday cut-off of Comex trading, two U.S. banks held a net short position of 14,400 Comex contracts...and twelve foreign banks held 315 contracts net long between them, which works out to just under 26 Comex long contracts per foreign bank. Any questions so far?

Returning to the COT report...and comparing apples to apples...the Commercial net short position was reported as 94.6 million ounces. The 14,400 contracts that the two U.S. bullion banks hold converts into 72.0 million ounces. Using Grade 3 arithmetic, these two U.S. bullion banks are short 76% of the entire Comex net short position all by themselves. At a minimum, 90% of that short position is held by JPMorgan...and the balance would be held by HSBC USA.

This is not rocket science, dear reader.

In gold, 4 U.S. bullion banks were net short 7.44 million ounces as of the Tuesday cut-off for the October BPR The September BPR showed that their Comex short position was 8.44 million ounces. So, despite the huge drop in the gold price, these four U.S. banks only managed to shave one million ounces off their short position on the Comex over the past reporting month.

The big change came in the 18 non-U.S. banks. Their September short position on the Comex was 3.83 million ounces...but the October BPR from yesterday showed that their short position on the Comex was down to 2.12 million ounces. That's just about a 45% decline in one month.

But, despite these changes in the Comex short positions in gold by all banks, both domestic and foreign, the fact of the matter is this. Four U.S. banks, on average, are short about 1.86 million ounces of gold apiece...while the 18 non-U.S. banks are short [on average] 117,800 ounces of gold each.

Visiting the COT report one last time, the Commercial net short position in gold as of the Tuesday cut-off stood at 16.5 million ounces. The four U.S. bullion banks are short 45% of that amount. So you can see that even though the four U.S. bullion banks' short positions in gold are the tallest hogs at the trough in the Comex futures market, they are almost of no consequence compared to the to the two U.S. bullion banks that hold 76% of the Commercial net short position in the Comex futures market in silver, of which over 90% is held by JPMorgan.

Like I said, this ain't rocket science.

Here's an interesting graph that reader Jon Macy sent me yesterday. It's the evolution of the 'too big to fail' banks over the last twenty years. It was posted over at the motherjones.com website...and it makes more interesting reading.

(Click on image to enlarge)

I have a lot of stories today...and since it's Saturday, I'm cleaning out my in-box, so I hope you find the time to run through most of these.

¤ Critical Reads

Our world is now ruled by finance: Its presence has displaced real value in the economy

Today's first offering is from reader Howard Brown...and it was posted in The Montreal Gazette yesterday.

A glaring problem is hiding in plain sight. Although it towers over us all, the financial industry doesn't actually make anything. You can't eat a mutual fund or build a house with derivatives, and the glossy brochures don't burn very well. The sudden explosion of finance has displaced real value in the economy. It's arguably itself a kind of massive stock market bubble. Now we have continuous economic volatility and stock markets like casinos because at the very core of Western economies, there's just a glossy brochure.

So when we see the spectacle of people in streets of New York screaming "we have to stop being a debt economy and go back to being a production economy," they have a point.

This is a pretty short read... and it encapsulates all that is wrong with our world today. The short positions that the banks hold in commodities that I talked about at length above, is one of the more visible aspects of the problem. I highly recommend this piece...and the link is here.

View full GSD edition

Fitch downgrades Italian and Spanish debt ratings

The Fitch agency downgraded its sovereign credit rating for Italy and Spain today and said its long-term outlook for both countries was negative, citing high debt and poor prospects for growth.

Separately, Fitch also said it was keeping Portugal's debt rating on watch for a possible downgrade, with a decision due by the end of the year. Portugal was the third and latest eurozone country to receive an international bailout package after Greece and Ireland.

Fellow ratings agency Moody's warned on Friday night that it has put Belgium on watch for a possible downgrade.

So the beat goes on. The U.S. will continue to downgrade Europe until the cows come home. This keeps everyone focused on Europe's problems...and away from the equally, if not more serious, problems that the United States has. This story was posted late last night in The Telegraph...and is Roy Stephens first offering of the day...and the link is here.

View full GSD edition

Moody's downgrades a dozen British banks

Credit rating agency Moody's has downgraded 12 British financial institutions, including Lloyds and Royal Bank of Scotland, claiming the government has become less inclined to step in when banks get into trouble, even though Britain’s finance minister said UK banks were well-placed to cope with a European debt crisis.

This Reuters story was posted over at the france24.com website last night. I thank Roy Stephens once again...and the link is here.

View full GSD edition

Banks are warned not to rely on future bailouts to survive

George Osborne, the Chancellor, spoke out after a major credit ratings agency downgraded 12 British banks – a move that is likely to lead to them having to pay more to borrow money.

"As I understand it, one of the reasons they are doing this is because they think the British government is actually moving in the direction of trying to get away from guaranteeing all the largest banks in Britain.

"In other words, how we are going to avoid Britain and the British taxpayer bailing out banks in the future, this Government is taking steps to do that and therefore credit rating agencies and others will say actually these banks have got to show that they can pay their way in the world."

This short piece was posted in The Telegraph just before midnight British Summer Time...and, unless otherwise stated, all stories from hereon in are courtesy of Roy Stephens. The link is here.

View full GSD edition

The Ticking Euro Bomb: What Options Are Left for the Common Currency?

How Greece becomes a pawn in the hands of investors. How the European Central Bank goes astray. Why the world no longer makes sense to the Greeks. How the Maastricht bet goes bad.

Politicians have maneuvered their countries into an unparalleled situation in the euro crisis. And they already know what most voters don't yet suspect. In the end, only two possibilities will remain to save the beleaguered common currency: an expensive transfer union or a smaller monetary union. Either solution will be extremely costly.

I ran Part 1 of this history of the Euro a couple of days back...and the final two installments are now posted at the spiegel.de website...and the link to all three of them is here.

View full GSD edition

Greek austerity breeds new generation of homeless

Two years into Greece’s devastating financial crisis, joblessness and homelessness are rife. For the first time, the middle class is having trouble making ends meet. More and more Greeks are finding themselves out of work, unable to pay their way, sleeping in their cars or even on the streets.

Resembling a youth centre or backpackers hostel, the independent Klimaka homeless centre is a rarity in Greece, where most non-state assistance is dominated by the church. Funded entirely by donations, even down to the soap and televisions, the centre is today busier than ever. People who have spent their adult lives employed and self-sufficient are now seeking refuge, food, and medication.

There are no surprises here, but it's still a sad read. It was posted over at the france24.com website yesterday...and the link is here.

View full GSD edition

Walker's World: War in the South China Sea?

This is a Roy Stephens offering that I've been saving since Monday.

An ugly momentum is building in the South China Sea, where an official Chinese newspaper called last week for war against Vietnam and the Philippines to uphold China's assertion of sovereignty over the mineral-rich seabed, estimated to hold 7 billion barrels of oil and 900 trillion cubic feet of natural gas.

The lead article in the Chinese Communist Party newspaper Global Times on Tuesday carried the headline "The time to use force has arrived in the South China Sea; Let's wage wars on the Philippines and Vietnam to prevent more wars."

This UPI story is a must read...and the link is here.

View full GSD edition

California and Bust: Vanity Fair

The smart money says the U.S. economy will splinter, with some states thriving, some states not, and all eyes are on California as the nightmare scenario. After a hair-raising visit with former governor Arnold Schwarzenegger, who explains why the Golden State has cratered, Michael Lewis goes where the buck literally stops—the local level, where the likes of San Jose mayor Chuck Reed and Vallejo fire chief Paige Meyer are trying to avert even worse catastrophes and rethink what it means to be a society.

I've been saving this story since Tuesday...and it's your monster read of the day. It's from the November issue of Vanity Fair...and the link is here.

View full GSD edition

How The Financial Crisis Created A 'New Third World'

While we're on the subject of the works of Michael Lewis, here's a NPR interview...plus a written executive summary of the program...that was sent to me by Oakland, California reader Martin Arnest.

The executive summary provides the highlights of the interview...and the NPR radio interview runs for about 39 minutes. The summary is well worth your time...and I'd bet the interview would fall into the must listen category. The link to all of this is here.

View full GSD edition

GATA conference speakers Ben Davies and Jim Rickards interviewed by King World News: Two Interviews

Hinde Capital CEO Ben Davies tells King World News that fractional-reserve banking is dying, that massive money printing is the only way for governments to recapitalize banks, and that gold has bottomed. The link to the KWN blog is here.

Geopolitical analyst James G. Rickards, also interviewed by King World News, echoes GATA's observation that official gold reserve data is unreliable, that many governments have more gold than they're acknowledging, and that China, with the most in paper assets, is now the "sucker" at the global gold poker table. This is a must read...and the link to the KWN blog is here. Eric informed me at 6:10 a.m. Eastern time this morning that the audio interview won't be available until sometime on Sunday, but when it is, I'd pretty much guarantee that it will be a must listen.

I thank Chris Powell for wordsmithing 'all of the above' on our behalf.

View full GSD edition

Gold shines amid gloom of 'worst economic crisis ever'

Fears that quantitative easing will boost inflation and devalue paper money helped propel the gold price $23 higher to close at $1,646 (£1,068) per ounce.

Bank of England Governor Mervyn King’s prediction that this financial crisis could be “the most serious we’ve ever seen” will add to bullion bulls’ conviction that the precious metal is the only safe store of value.

This story appeared in yesterday's edition of The Telegraph...and the photo itself is worth the trip. This is Roy's last offering of the day...and the link is here.

View full GSD edition

The issue which has swept down the centuries and which will have to be fought sooner or later, is the people versus the banks. - Lord Acton

As usual, I have my 'blast from the past'...and the link is here. But I also have a couple of other very short video clips that are must views as well...one if amazing...and the other is very funny. The amazing one is linked here...and the very funny one is linked here. I thank my dad for the first one...and Roy Stephens for the second clip.

I was expecting somewhat more activity yesterday than what we ended up getting...and I was a bit surprised when that not-for-profit seller showed up at 12:15 p.m. in New York to chop the legs out from underneath the gold and silver prices. Nothing free market about that.

The preliminary open interest numbers for Friday's trading day showed smallish increases in both metals...the final numbers may show more, but I'm not about to read much into them.

The final open interest numbers for Thursday's trading day were neutral in gold and down a few hundred contracts in silver...and I'm not prepared to read anything into that, either.

Basically we are at the bottom of the price barrel in both gold and silver. The engineered price decline by the bullion banks has decimated the long positions of both the technical funds and the small traders...and they're currently licking their wounds. Ted Butler says that it may take them a while to get up the courage to come back into these markets, if they ever do.

Make no mistake about it, there was nothing in the real world of supply and demand that drove prices down to the lows we saw over a week ago. It was all precipitated by JPMorgan et al. They started the price ball rolling down the hill...and the margins calls and short covering avalanche that followed was on an unprecedented scale. This was pure cause and effect. As Ted has said to me several times over the last week or so, all the commentators get the effect part right...but it was not the cause. It's amazing the number of people that didn't see this event for what it was.

As you may remember from my comments about the big commercial shorts in both gold and silver, this is a case of the tail wagging the dog. Prices are supposed to be 'discovered' in the Comex futures market. But they are being set there. Ted Butler has every right to call the CME and the CFTC criminal organizations, because that's exactly what they are.

And then to add insult to injury, the silver and gold companies that you supposedly own...and have shares in...won't raise a finger to help you, or themselves. And as Sprott Asset Management's John Embry says about the mining companies..."They are either ignorant, naïve...or complicit."

Where we go from here...and how fast we get there...is a big unknown. We'll just have to wait and see. The most important thing to watch out for is whether or not the bullion banks will be the short sellers of last resort on the next rally. And, as Ted Butler mentioned further up in this column, the small Commercial traders/raptors on the long side [38 in silver and 50 in gold] are holding 20,000 long contracts in silver...and about 31,000 gold...as they were buying long positions all the way down during this engineered price decline. They'll be selling these for big profits into the next rally...which the bullion banks themselves may engineer...and it's possible that the bullion banks will be buying back all the longs that the raptors are selling. That may be the plan.

Anyhow, cheer up. Go buy some physical silver this weekend...as this, too, shall pass.

See you on Tuesday.