The Market is Like a Box of Chocolates...

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A $31 meltdown in value during the overnight hours brought gold to the $775 level far faster than even the most pessimistic expectations we had seen of late. Once the $800 level was breached at 19:40 hours NY time, the metal went into a tailspin the magnitude and viciousness of which was frightening. While gold will make every headline in today's financial press as it undergoes this now nearly vertical slide that puts even its 2006 drop of $200 into the minor leagues, the bigger story unfolded in the silver market where the white metal lost more than 12% of the value it finished at on Thursday afternoon. Words like 'overdone' or 'oversold' began to no longer apply once the metals penetrated the key psychological round figures that lay at $800, $14, $1400 and $300 for gold, silver, platinum, and palladium.

The prime movers remained the US dollar (which vaulted above 77 on the index and knocked the euro to 1.47) and crude oil (leaking value like a crippled tanker down to $113.50) and they precipitated the stampede for the exit door among funds to the point of crushing any bystanders. We had written months ago that the more than 14% plunge in dollar values we had witnessed over the last year could end up reversing course by as much as one half under certain conditions. The greenback has now gained nearly 5.5% in just the last month. For another illustration of all of this, just look at the UK pound. It was pounded into the ground following an 11-day losing streak against the dollar - the longest such dip in 37 years (!). Attribute these moves to whatever you like, but do not live in denial. And do not forget to ask your friendly bottom-picking newsletter vendor to confirm (once again, for the n th time) that "this time, this really is IT." We doubt they might stick their neck out one more time. Let's see when Mr. Hulbert senses capitulation among them.

Friday's New York session opened not quite at the overnight low water mark, but still down $12 at $793.70 as participants added to the growing pile of bloody towels thrown into the market's floor since the first of the month. Investment guru Marc Faber was the first important commodity figurehead to now officially call the fact that "Prices have made a peak." Mr. Faber does not yet know if $1033.90 was the final such pinnacle or just an intermediate one, but he concedes that values are likely headed lower. Silver continued much lower, losing $1.05 at $13.09 this morning and the descent also continued in the PGM complex where platinum shed $85 to $1389 and palladium fell $12 to $293 per ounce.

We now bring you an overview of the situation from Marketwatch's tireless Myra P. Saefong. In her Commodities Corner weekly focus piece, she finds that gold's safe-haven status has been called into question by the developments over the past month. Bear in mind that the piece was written before last night's core meltdown and please note that if you normally do not like what this writer has to say when reporting the facts, there are several quotes in here by yours truly:

Gold was supposed to be more resilient, both literally and figuratively, to the sell off in commodities -- yet prices for the precious metal have dropped more than $100 per ounce in the past two weeks.

The talk of a breakdown in the so-called commodities bubble has started to encompass gold. But the metal's unique quality as a safe-haven investment gives it that special edge that may help it break away from the slump in other commodities.

"The situation is somewhat confusing," said Frederic Panizzutti, senior vice president at Swiss-based MKS, a precious metals service provider. "Gold remains a safe haven, but its attribute as a commodity links it to the trend of other commodities."

Gold prices have suffered a drop of almost 12% since July 31. They tacked on nearly $17 on Wednesday and lost it the next day. Oil prices have fallen more than 20% in a month. Corn and wheat futures have also dropped from their record levels this year.

"The speculative allure [gold] had presented to index and hedge funds has all but dissipated," said Jon Nadler, a senior analyst at Kitco Bullion Dealers.

Oil, wheat, rice and a host of base and precious metals had climbed "clearly beyond the scope of their fundamentals and reached distorted levels," said Nadler.