http://news.goldseek.com/GoldSeek/1228061100.php

By Andy Hoffman

The war over gold and silver rages on, with its center stage as always at the NY COMEX futures exchange, often referred to affectionately as the “CRIMEX”. Myself and other metal market observers, most notably Jim Sinclair, Marc Faber, Eric Sprott, and Bill Murphy, have painstakingly watched this horror show play out over the past decade, under the guise of the U.S. “Strong Dollar Policy”, the ultimate oxymoron and falsehood.

We and others have discussed at length the incredibly positive fundamentals for both gold and silver, and by now it should be clear to all that supply for both are PLUMMETING while demand is EXPLODING. And there’s a reason why I’ve capped these words, as I cannot underestimate how powerful these forces have become, and how much strength they gain each day. Aside from the sharp increase in demand, depicted in last week’s World Gold Council quarterly report and by the fact that the Perth Mint, one of the world’s largest, is not accepting any more orders, supply is completely collapsing in nearly all markets.

But, once again, the key to this story is NOT the dollar, NOT other commodities, NOT the credit crisis, and NOT even gold’s supply/demand balance. It is one thing, and one thing alone; the ability of the gold/silver Cartel to surreptitiously (and in many cases illegally) sate the soaring physical demand. Clearly, they are losing the battle of the physical markets, given global shortages, record demand, and record premiums being paid over spot prices. Not to mention that gold is hitting new record highs in nearly all global currencies outside the yen and the dollar, the two currencies that have benefitted the most from the deleveraging (NOT safe haven buying) going on over the past two months. See the link below.

http://jsmineset.com/index.php/2008/11/24/gold-in-us-dollars-is-only-part-of-the-picture/#respond

But the WAR is fought in the NY COMEX market from 8:20 am to 1:30 pm EST each day, as that is where essentially ALL of gold and silver’s losses occur. Amazingly, throughout this nearly nine-year bull market, gold has declined far more than it has risen in New York, and last I read it had fallen in something like 93% of this year’s trading sessions despite being down just 2% this year. And, by the way, that 2% decline has outperformed essentially every asset on earth, not just this year but for seven straight years, soon to be eight!

Anyone wonder why in today’s massive “reflation” trade, in which copper, oil, and stocks all rose sharply, somehow the ONLY asset to decline was gold, which by definition is the asset class of choice if one is betting on “reflation” (read: inflation)? I think you know the answer, an answer which once again was given between 8:20 am and 1:30 pm EST in the NY COMEX futures market.

But the COMEX’s days of setting global gold and silver prices appears to be nearing its end (in itself a ridiculous concept, given that such a tiny percentage of futures traders have anything to do with the business of gold and silver production). As I have been noting for some time now, COMEX open interest, or the number of outstanding contracts, has been plummeting for both metals all year. Consequently, open interest for both gold and silver are currently at multi-year lows amidst the greatest financial crisis in a century.

The gold open interest has plummeted from an all-time high of 593,000 in January to an astounding 276,000 today, a level not seen in three and a half years, at a time when the gold price was just $430/oz versus $817/oz. today. In silver, open interest has fallen from a record 189,000 in February to a scanty 86,000 today, a level not seen since 2004 when the price of silver was about $6.80/oz versus $10.35/oz today. See the charts below.