Wednesday, May 24, 2006

 

Spooked Global Markets Continue Sell-Off

Another wild ride in the markets today. "Gold futures rose as much as 1% in electronic trading Wednesday evening following a loss of more than $36 an ounce in the regular session, when stronger-than-expected new-home sales fueled a rise in the U.S. dollar and damped investment demand for precious metals."

"Gold for June delivery plunged $36.20, or 5.4%, to close at $637.50 an ounce during the regular session on the New York Mercantile Exchange. 'Two more days such as this in a row, would make for real worry,' said on Nadler, at bullion dealers Kitco.com. 'If we do not hold $620 then $600 or $580-ish, this phase will be considered over and a lot of repair work (to rebuild confidence) would have to take place (for quite a few months at that).'"

"But at the moment, the gist of it is, 'after rising some 60 days (almost in an uninterrupted string) a ten-day pattern of lower prices should not be too scary,' he said. Investors, mostly of the smaller, retail variety, 'appear to prefer loading up on more [gold] only if they perceive that the correction has run its full course or if prices are at truly bargain-basement levels (say from $580 to $620),' he said."

"'We still cannot rule out the possibility (now becoming more of a probability) of executing a full (or very close to full) 50% retracement of the $300 move achieved by gold during the past year,' he said. And that would bring gold 'very near the high 500s or low 600s.'"

"Ned Schmidt viewed the steep drop in gold as a buying opportunity. 'When funds meet an illiquid market like gold, prices decline,' he said. 'That equals opportunity for real investors.' So 'investors should be using this period through early next week to be buying gold.'"

"July silver lost 65.5 cents to close at $12.515 after touching a low of $12.42. Prices rose 6% in the previous session. July platinum dropped $36.40, or 2.8%, to close at $1,285.10 an ounce and June palladium shed $8.60, or 2.4%, to finish at $354.75 an ounce."

"Further growth in investment demand could send silver prices higher, or in the least, 'maintain them at levels well above what might be expected given the interplay of silver's other supply/demand components,' according to the World Silver Survey 2006 report produced by GFMS Ltd. for the Silver Institute."

It wasn't just metals. "Canadian stocks took a triple-digit dive Tuesday as gold and mining shares declined. U.S. stocks rose despite the easing of oil and metal prices. The S&P/TSX composite index tumbled 116.02 points to 11,423.91 with the capped gold index falling 4.13 per cent and the capped metals and mining index shedding 1.71 per cent."

"In commodities, oil prices dipped as traders reacted to a U.S. government report that showed domestic gasoline inventories rose for a fourth straight week. Light, sweet crude for July delivery fell $1.90 (U.S.) to $69.86 a barrel on the New York Mercantile Exchange."

"Currencies and stocks kept falling across Latin America Wednesday as investors shifted money out of emerging markets toward more secure investments. The Brazilian real fell to its weakest point of the year, closing at 2.4 to the U.S. dollar. Mexico's peso closed at 11.2850 to the dollar, its weakest since January 2005, and Colombia's peso fell to 2,541 to the dollar, its lowest since November 2004."

"The capital flight was apparent on the Sao Paulo Stock Exchange, where the benchmark Ibovespa index shed more than 3 percent in intraday trading. Local stocks and bonds also suffered in Mexico, where BBVA Bancomer said foreign investors reducing their bond positions will remain a possibility as long as the peso weakens and the market cuts its exposure to high-risk assets."

"The dollar rose against most major currencies Wednesday after a U.S. report showed that new home sales jumped in April, raising speculation that the Federal Reserve may hike interest rates in June. The euro bought $1.2773 in afternoon New York trading, down from $1.2861 in New York late Tuesday. The British pound slid to $1.8717 from $1.8843."

"The dollar strengthened against Japanese currency, climbing to 112.69 yen from 111.32 late Tuesday. The dollar bought 1.2156 Swiss francs, up from 1.2066 late Tuesday, and 1.1199 Canadian dollars, up from 1.1182."

"The Commerce Department reported that sales of new single-family homes increased by 4.9 percent last month to a seasonally adjusted annual rate of 1.198 million units, the highest rate since last December. 'The report bolsters the case for the Fed to raise rates in June,' said Michael Woolfolk, a senior currency strategist at the Bank of New York, 'because it shows a very gradual cooling off of the housing market and a soft landing, which is what the Fed hopes to attain.'"

Comments:
I love it, gold is up over 50% since this time last year and the headlines talk about the huge corrections. Gold and silver are way up,and will keep heading that way, but corrections/consolidations will happen.That's why I have said over and over to all of the "we'll be at a $1000.00 an ounce in few months crowd" Calm down, we'll get there and beyond, but it will take time. The fundamentals have not changed.
 
With all due respect to all of the intelligent posts and posters here, isn't just possible that we underestimate status quo? Taking a concrete example, is it possible that the Fed saw the rapid run up this and decided that behind the scenes policy would be to tap it down, or as Ben called it "talk it down"(and maybe that's not so behind the scenes). But if you think of what's at stake, investing in gold instead of the dollar means you are not just betting against the success of Bernanke and Fed but also against any powers that wish to maintain the status quo.
 
they may win a battle but they'll lose the war.

they certainly haven't held up the new home price - down 7%.
 
The media shills are in full affect right now...we are lucky to have such a qualifed group of investigative jounalists who are not afraid to ask the tough questions.

The myth of a free press is one of the biggest jokes in America.
 
When the funds adjust their allocation , the moves spread very quickly. That's why I said some days ago that the volatilities will be high in all markets.

The market is forming a consensus now that Fed is going to raise another quarter point in June. The impact of this consensus is huge across all assets, except for oil.

The fact of the matter is that oil will remain high and so will inflation. At the same time, the economy "is" strong, at least from the government numbers. As a result, Fed will continue raising rates till it really kills the economy.

So gold will have correction until the economy is dead in water and Fed moves to ease rates, which may happen close to the end of the year.

Barring some unusually incidents, gold will remain in some limbo and start to take off in the fourth quarter.

I am open to your arguments.
 
JohnDicht, I tend to agree with you...PMs will probably trade sideways for a while with some wild
swings each way. I believe the Fed
has to continue to print money just
to maintain...Once they stop raising rates, gold/silver will really take off...Another trigger could be an event that puts fear in
to the market.
My advice: Buy on the dips
 
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