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Message: article by Ed Steer

article by Ed Steer

posted on Feb 15, 2008 04:53AM
And then there's this...

From Ed Steer:

Thursday's gold pattern was familiar. The peak was shortly after 3:00 a.m. in Hong Kong and just before the London open. From there it sold off until shortly after the Comex open...rose until London was closed for the day, then that was it. Silver was very similar, except it didn't start its price decline until the London a.m. gold fix was in. You may also note, if you check the Kitco charts, that platinum and palladium's tops occurred at exactly the same time as gold and silver. Coincidence? I doubt it.

Oil was up a couple of bucks...natural gas was on a tear, the grains and softs were on fire, the RJ/CRB made a new high, and the dollar was down. But it made no difference to the price of either gold or silver. As I've said before, what determines the prices of these two metals is the interplay between the technical funds in the Non-Commercial category and the '8 or less' traders (gold cartel) masquerading as producers/consumers in the Commercial category. It's as simple as that.

It appears that we are in the middle of another consolidation pattern for both gold and silver, although it's my opinion that this pattern was not the result of free market forces. This consolidation pattern is almost a carbon copy of what happened in February/March of 2006...right in the middle of our last major bull run. The link to the 3-year chart is here.

Wednesday's gold open interest rose 734 contracts and silver made another all-time high...rising 2,632 contracts to 189,941. I'd like to think that these longs, that are piling into the silver market regardless of the price action, are legitimate. It could also be an increase in spread trading. Hopefully, the COT that will be issued today, will clarify the situation a bit.

In the bad news department...there is no other kind these days...the list is as long as it was on Wednesday: Bloomberg..."Fe>d Interest-Rate Cuts Fail to Lower Borrowing Costs" for consumers. Merrill Lynch says companies are paying more to borrow now, than before the Fed cut its rate by 1.25%. ..."Subprime hits BayernLB with nearly US$2.9 billion dollar loss". WSJ..."Worried Bankers Seek to Shift Risk to Uncle Sam"....i.e...the tax payer! Someone heard their prayer immediately...Bloomberg..."Freddie Mac Suspends Mortgage Insurer Capital Rules" so it can buy more crappy paper from the monolines. Talking about crappy paper...here's some more...Bloomberg: FGIC Insurance Credit rating Cut to A3 from Aaa by Moody's." Bloomberg: "GMAC may face "Substantial Difficulty," says Stephen Feinberg at Cerberus Capital." No kidding! This guy has a keen grasp of the obvious! Bloomberg: "UBS posts record loss after $13.7 billion write down." The Telegraph, London: "Rescue plan to save Deutsche Industrie Bank"..."Germany faced it's "Northern Rock moment" Wednesday night as top ministers and bankers thrashed out a rescue plan to save IKB Deutsche Industrie Bank, fearing a "bank tsunami' if the struggling lender was allowed to fail." So much for the German banking industry's wonderful reputation. Bloomberg: Home Prices fall in record 77 U.S. Metro areas, Realtors say." And lastly....Bloomberg: "UBS won't support failing auction-rate securites...80% of the $15-20 billion of auction-rate bonds failed to attract sufficient bids on Wednesday." The muni-bond market has basically gone 'no bid' as of right now.

I've got two stories today. The first is the one I mentioned in the preceding paragraph about the German banking situation. It's written by Ambrose Evans-Pritchard from The Telegraph in London, and is entitled "Rescue plan to save Deutsche Industrie Bank," and it's linked here.

The second one is a five paragraph essay that was written last year. I've posted it before, but considering the unfolding credit debacle, it's particularly relevant for you to run through it one more time right now. It's by John Rubino...it's entitled "Nope, That's Not Money!"...and it's linked here.

How the credit markets of the world can remain functional under these rapidly deteriorating fundamentals is beyond me. More and more crappy paper is going 'no bid' at breathtaking speeds. How long this can go on before the entire financial system freezes solid is anyone's guess. It's my opinion that the central banking fraternity of this world is so far behind the curve now, that they can't prevent the debacle no matter what they do. Time will tell. Take the red pill this morning and try to relax, as Fridays are always interesting. All of us at Casey's Daily Resource Plus will be here on Saturday to report on it.

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

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