U.S. gold sinks most in a month; silver down 10 percent
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Five-tael (6.65 ounces or 190 grams) gold bars are seen at a jewellery store in Hong Kong in this August 11, 2011 illustration photo.
Credit: Reuters/Bobby Yip
NEW YORK |
NEW YORK (Reuters) - U.S. gold futures posted their steepest losses in a month on Thursday, dragged down by a global flight from risk that raises new questions about bullion's value as a safe haven and the sustainability of its long rally.
Silver crashed nearly 10 percent lower, its biggest sell-off since it collapsed from a record in early May, while copper sank 8 percent and oil 5 percent as commodity markets bore the brunt of the global rout, triggered by mounting economic anxiety after a fresh round of weak data.
The spot price of gold, which tracks bullion, fell by a more modest 2.5 percent. Even so, it rattled investors who fear weeks of extraordinary volatility and the apparent loss of a safety premium may be undermining one of bullion's biggest selling points.
"Gold is never a safe haven," said Dennis Gartman, an independent investor and regular commentator on gold, based in Virginia. "When something can move 3, or 5 or 6 percent in the course of two days, that's not a safe haven. Safe havens should be quiet and stable ... not violent."
The benchmark December gold futures contract on New York's COMEX settled down $66.40, or 3.7 percent, at $1,741.70 an ounce, after setting a session low at $1,723.20. It was the contract's sharpest one-day loss since August 24.
In bullion, the spot price hovered at $1,738 an ounce by 4:20 p.m. EDT, down 2.4 percent from Wednesday's last trade of $1,781.29. Earlier in the session, it hit a one-month low of $1,721.34 earlier.
Spot silver dived to $34.89, from $39.60 a day ago.
As the dollar's inverse correlation with stock markets waned, its link with the dollar strengthened as investors seeking safety rushed straight to the greenback, which hasn't attracted the kind of speculative flows that gold has.
The dollar hit eight-month highs against the euro and U.S. Treasuries rallied.
The fear factor this time was a third straight month of manufacturing declines in China, as the world's second-largest economy began to exhibit signs of fading demand from the United States and Europe.
Weak German data and renewed pessimism about the U.S. economy from the Federal Reserve heightened worries about a global recession.
In gold, the sell-off stemmed largely from the dollar after the Fed said on Wednesday it was shifting its portfolio toward longer-term debt to bolster the U.S. economy. Investors unwound leveraged positions funded in dollars in response.
Short-term interest rates also rose, helping the dollar further, as the Fed's proposed $400 billion portfolio reshaping did not involve an expansion in money supply.
To further his argument on how much more volatile things could get, Gartman said gold seemed poised for both a rebound and deeper losses.
"I get the sense that gold may bounce from here. But if you get a bounce up to $1,760 or $1,780 or so in the next two days, there'll be plenty of people selling it up there.
"I'm not sure there is a price that will get the market into absolute buying again. I think it'll have more to do with the passage of time. We'll have to see if this morning's lows hold for honestly a month or more, before anybody steps back to say 'I'm going to buy it now'," Gartman said.
Technical analysts said gold futures were within $20 of a new support area, which if broken could further unravel this year's gains of more than 20 percent.
"Gold is forming a large, ominous double-top pattern. There is a neckline at $1,705.40 ... that's an important area to watch," said Adam Sarhan, chief executive of Sarhan Capital in New York.
"We're either going to have a light-volume pull back toward that support and bounce or it's going to slice through this neckline like a hot knife through butter."
Hans Kashyap, president of Analytics Research Corp in California, said there was still a good chance that gold would digest the current pull back and hold in a larger trading range, roughly between $1,700 and $1,900.
The world's largest exchange-traded fund in gold, the SPDR Gold Trust, has seen its holdings in bullion fall by nearly 1.0 million ounces this year. So far in September, holdings of gold have risen by just under half a percent after nearly two straight weeks of outflows in the early part of the month.
Some suspect that gold is not as fundamentally or technically weak as suggested, but suffering because of a relatively high value that made it easy to sell for covering losses in stocks and other bad trades.
Gold has finished up in five of the last eight months and its race to record highs above $1,920 an ounce in September had put a number of investors in the money, some analysts said.
"Commodities may be the biggest risk assets but they are also the easiest to liquidate, and this is probably more true with gold than anything else," said Sean McGillivray, vice president and head of asset allocation for Great Pacific Wealth Management at Grants Pass in Oregon.
(Additional reporting by Amanda Cooper in London; Editing by Dale Hudson and Marguerita Choy)
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Of course, this rational course of action would be bad for the Shorts and good for the Longs – can’t have that, can we?
Meanwhile, key leaders from both major Parties – almost the only thing they can agree on these days – are reintroducing legislation meant to penalize the Chinese for “egregious” – their word – currency manipulation. Despite a very slightly lower Chinese output stat tonight, that threat, too, should be boosting the Yuan and harming Emperor Dollah.
And there are now STRONG hints that part of the problem at Hewlett Packard may be closely related to the ongoing Internet Malware scandal, which has now spread way beyond News Corp and Dow Jones to encompass much of “elite” Internet media.
We all know, do we not, that this will very soon implicate the HFTs, many other Cloud users, and eventually every major financial media site which hasn’t been very, very careful?
But Hurry! Hurry! maybe the Bullying Hedgies and all those in their corrupt orbit can steal some more from every Market participant who ISN’T them, before scandal and disgrace catches up with them.
Markets as Creators of Wealth or Markets as Destroyers of Wealth.
Up to a few short weeks ago, our Collective We had chosen the former.
Why did we fold? Why did those of goodwill simply give up? Why are we reverting, totally unnecessarily, to the horrible old days before the launch of the Washington Agreements?
We were finally collectively acting with integrity and honesty and courage. Why did we cave in to the forces of bullying and corruption and criminality and pure greed?
The leveraged funds are getting knocked out and with the Asian Pacific Gold Exchange ready to open, this is the last shot the highly leveraged paper shorts in silver and gold have to try to get out of their massive and deeply in the red short positions before the physical market throws them off.
The dollar a safe haven? Please, don’t insult my intelligence. The one thing I know with certainty is that the dollar in absolute terms is valued inversely proportionally to the amount of net sovereign and private debt in the United States. Gold is valued proportionally to the global net of sovereign debt. Yes, the Fed and other central banks can manipulate the dollar up relative to other currencies and can for a short period (for the time being) also work on making gold look like it weakening relative to the dollar on a very short time scale. On a longer term scale (step away from your trading screen), the dollar is buried under unrepayable debt, which explode if the economy takes a nose dive even steeper than the one its in.
Increasing Debt = Dollar Devaluation and Gold Appreciation. Given that that even the Fed acknowledges significant downside risk (which is deep understatement), they have done so to prime the pump for the next round of QE 3, which I expect will be announced within 30 to 60 days or sooner if the markets don’t level out pretty soon. The one thing I am certain of is that the dollar and the debt will be moving in inverse relation over the long run and that debt will increase if the economy doesn’t pick up, making the risk to the US sovereign debt increase. Here is a recap of Jim Sinclair’s formula that describes the completely untenable situation that the US and EU financial systems now find themselves in. Keep in mind that only because of QE has item 1 not been seen yet. QE devalues the dollar as well as a crashing economy because QE simply prolongs the increasing debt cycle and is the only way to keep the existing banking and global financial order operative. I expect the Fed’s balance sheet will be allowed to expand indefinitely as has Japan’s.
1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.
3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
5. Lower profits leads to lower Federal Tax revenues.
6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.
The leveraged funds are getting knocked out and with the Asian Pacific Gold Exchange ready to open, this is the last shot the highly leveraged paper shorts in silver and gold have to try to get out of their massive and deeply in the red short positions before the physical market throws them off.
The dollar a safe haven? Please, don’t insult my intelligence. The one thing I know with certainty is that the dollar in absolute terms is valued inversely proportionally to the amount of net sovereign and private debt in the United States. Gold is valued proportionally to the global net of sovereign debt. Yes, the Fed and other central banks can manipulate the dollar up relative to other currencies and can for a short period (for the time being) also work on making gold look like it weakening relative to the dollar on a very short time scale. On a longer term scale (step away from your trading screen), the dollar is buried under unrepayable debt, which explode if the economy takes a nose dive even steeper than the one its in.
Increasing Debt = Dollar Devaluation and Gold Appreciation. Given that that even the Fed acknowledges significant downside risk (which is deep understatement), they have done so to prime the pump for the next round of QE 3, which I expect will be announced within 30 to 60 days or sooner if the markets don’t level out pretty soon. The one thing I am certain of is that the dollar and the debt will be moving in inverse relation over the long run and that debt will increase if the economy doesn’t pick up, making the risk to the US sovereign debt increase. Here is a recap of Jim Sinclair’s formula that describes the completely untenable situation that the US and EU financial systems now find themselves in. Keep in mind that only because of QE has item 1 not been seen yet. QE devalues the dollar as well as a crashing economy because QE simply prolongs the increasing debt cycle and is the only way to keep the existing banking and global financial order operative. I expect the Fed’s balance sheet will be allowed to expand indefinitely as has Japan’s.
1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.
2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.
3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.
5. Lower profits leads to lower Federal Tax revenues.
6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.
7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.
8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).
9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.
10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.
11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.
12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.
Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.
I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.
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