Money and Metals

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."