Friday, March 02, 2007


"A Rout In Bullion"

MarketWatch reports on the precious metals market. "Gold futures dropped more than 3% Friday, suffering from a fourth-straight losing session and a weekly loss of more $42 an ounce with investors still rattled by this week's volatility in global stock markets as they eye demand for the precious metal in Asia. 'We have now witnessed a rout in bullion of a magnitude not seen since last fall,' said Jon Nadler, an analyst at Kitco Bullion Dealers."

"Gold for April delivery lost $21 to close at $644.10 an ounce on the New York Mercantile Exchange. Prices have been falling from Monday's $689.80 level in the wake of Tuesday's global sell-off in stocks that triggered volatility across financial markets."

"Silver futures led the decline in the precious metals, with the May contract dropping 5.1%, or 69 cents, to end at $12.96 an ounce. The contract touched a six-week low of $12.80 and ended the week with a 12% loss."

"U.S. stocks weakened Friday with the Japanese yen's rally against the dollar and more bad news for mortgage lenders fueling the same anxiety that has sent stocks sliding all week."

"'This can no longer be called a delayed reaction to Tuesday,' said Nadler. 'There had to have been some inherent structural weakness in bullion at play here in addition to the oft-used 'quest for liquidity' excuse we keep hearing. Yes, it is oversold, but many other assets may soon in the same boat,' he said. Global investors remain 'extremely nervous.'"

"It makes sense, 'with stocks in China remaining under pressure, and with the Chinese notoriously involved in the gold market, it does not take a great deal of wisdom to discern that liquidation of profitable gold positions would be undertaken by those suffering material losses in their equity trades,' said Dennis Gartman, publisher of the Gartman Letter."

"'Then, we have Japan,' Nadler said. 'The unwinding of the yen carry trade will now go down in the history books as one of those epic shifts in investment behavior that altered the market landscape for years to come.'"

"April platinum skidded 2.7%, or $33.40, to close at $1,211.80 an ounce and was $25.80 lower for the week, while sister metal palladium saw its June contract lose $3.45 to close at $350.60 an ounce, ending $13.10 lower for the week."

"Over in the currencies market, the yen rose to a new 2 1/2-month high against the dollar as heightened volatility in global markets and increased aversion to risks prompted investors to unwind the so-called 'carry trades.'"

"'The carry unwinding' is a part of the reason for gold's decline, said Neal Ryan, director of economic research at Blanchard. That 'will eventually be positive for the market, but it'll sting a bit at first.'"

"'Combining the need for capital because of margin calls on funds, yen carry unwinding and some relentless selling and shorting from large commercials on the market who realized the precious metals were susceptible to these drops has hurt as well,' he said. 'Investors are retreating into cash and hiding until there are some signs that the volatility is dissipating from the market,' he said."

"Overall, 'gold's quite overbought condition has been largely eliminated thanks to this week's trading,' said Peter Grandich, editor of the Grandich Letter. 'Today is likely to mark an important bottom,' he said."

"'Widespread bullishness has been replaced with disappointment or outright bearishness, a condition that has signaled the end to previous short, but sharp, corrections the last several years,' Grandich said."

"He points out that gold was up for seven straight weeks, and 'funds had one of the net longest positions on the Comex versus commercial shorts. The activity in the financial markets allowed this spread to unwind faster than normal, but has created an illusion that gold is not performing like it's suppose to,' he said."

From CNN Money. "Bernard Hunter, director of precious metals at bullion dealer ScotiaMocatta, said that the ongoing liquidation in the stock markets triggered the sell-off in gold. 'It's one thing for people to run around and say it's a great diversifier and a safe haven to all the risks. But the fact is, when things start going bad, people tend to liquidate their gold holdings in order to pay for the bad stuff,' Hunter said. 'It really just highlights how fragile the rally has been,' he said."

"A COMEX floor trader said that the funds remained on the sidelines in the gold market, and he noted that the open interest in gold futures also increased. 'There're still massive longs out there, and they have not gone out yet,' he said."

"On the other hand, he said that fund selling was seen in silver, and that funds were getting out of their positions in the white metal."

"The silver futures also dropped 4 percent on Thursday. The May contract had rallied more than 17 percent from its 2007 low before this week's setback. Hunter said that silver was hit particularly hard, and waves of selling were to blame for its sharp decline."

"'The trouble is that when those waves come in, it's just not a lot of buying there to support it,' Hunter said."

Starting to smell a buying opportunity!!! ;-)
I jumped in!
I too am looking to pick up a couple of ounces, and am not sad to see this pull back. The media was getting too bullish, IMO, and if the hedge funds were using carry trade money to speculate in gold, then the whole thing is shaky. Much better to build a market on solid demand.


Can you tell us how your transaction played out, in case a newbie is reading?
Anyone care to venture a guess as to how folks can rationalize that Treasuries are safe?

CPI doesn't include stocks, real estate, or bonds, yet GDP does. Yes, that will drastically distort the numbers. In other words, GDP is, to a substantial degree, measuring the creation of credit.

Dow Jones nearly doubles while FFR is at 1%--wonder where the money/credit originated?

So I am going to invest in US debt, and consider it safe?

Like I said before, I have no doubt you'll get back Fed Reserve Notes, but what will the purchasing power be? They are backed by the tax base of the people, but what can we export that will begin to correct the deficit?

We've been exporting the military to coerce the rest of the world into using our dollars (look what we do when other states opt for a different currency when purchasing oil). It allows us to tax the rest of the world while we cut taxes here. Does anyone ever wonder how it appears like there is such a thing as a free lunch?

So while the rest of the world wants out of the dollar, folks in this country are buying them? It makes no sense to me. I recommend the book "The Gold War". An excellent read on international finance and economics, and only 200 pages.

Tht has been the real tyranny of the Fed's system, hasn't it? A lack of alternatives to the US$.
I agree. You mention tyranny, and most people immediately conjure images of some USSR dictator. They don't actually understand liberty and tyranny.

Liberty: free from arbitrary authority

Tyranny: absolute arbitrary authority

When you apply these definitions and our current financial system, it is paramount that the electorate have a basic understanding of basic monetary principles. If not, how can the electorate sort out policies that are beneficial to the electorate versus policies beneficial to politicians, corporations, or bankers? You can't. The electorate assumes that what is done is for the electorate's best interest.

However, you've got to ask yourself why this is the fourth central bank we've had in our history, and why the founders dictated that the republic use commodity money. What did Washington, Jefferson, and Jackson fear when terminating the previous central banks?

The electorate certainly has the liberty to change the system. In the meantime, for those who understand how the game works, it feels like tyranny. The only way it will change, in a civil/democratic manner, is through education.
Monday looks to be bad.

Gold Futures were limit down in Japan.

Long term I am still a Bull due to the Printing Press, but we could test $550.00.

My last buy was at $580.00 80% of my holdings are between 400-460. We bust 600 I may sell some only to buy back in when it finds support.

Gold is an equity also, right now they are all marching down together.

It does look like there is a good chance it will test those levels.
Ben, I decided to buy from a local dealer, a couple of krugs when the price was down from the peak, then a couple of maples when it fell on Friday. It may fall further, I don't know, but think in the longer run, a few coins in the safety deposit box is good diversification. If gold keeps falling, I'll buy a few more to cost average. My cash at ING may earn 5%, but keeps devaluing. A former business partner had quite a bit of gold, bought a long time ago, and he "sold it all" last spring. I just wonder why he didn't sell only half.
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