Liquidity Shifts from Stocks to Metal Markets
The credit crisis still lingers across financial markets and imprisons the global economy. All the plans put by governments around the world, with the lead of the U.S. government, alongside global central banks' plans, that had managed to shield the crisis from trader's eyes, despite expectations from the international monetary fund about the credit crisis prevails till now. The bankruptcy of the lending company, Cit Group Inc, was a reason behind traders realizing the truth about the economic situation around the world; it can be considered an improvement yet was not capable of reviving and stabilizing economies. The 101 year old company managed to fall into bankruptcy, despite of governmental incentives shelled out by the government and rights offerings have failed in helping the company regain some of its drained liquidity; however, due to this news numerous traders are looking at the U.S. economy in a new light, away from its GDP.
Pessimism overshadowed U.S. stocks throughout Friday's trading session; where we witnessed the DJIA plummet by 2.51%; whereas Asian stocks saw a sharp drop today, where Nikkei fell by 2.31%.
The wide profit-taking on metals, alongside numerous investors searching for a safe haven, captivated investors once again, especially following gold's sharp drop on Friday, where it managed to limit its losses then and close with a minor decline of 0.11% in NY, closing at 1044.70 per ounce and rising above 1034.00 it had previously reached. Meanwhile, silver remains low, where traders are in search of a safe haven more than speculating or investing, thus keeping silver low by 2.10% to close at 16.32; whereas platinum also faced a drop by 1.12% to close at 1324.00, where it was the last at reducing its losses but looking at it trading we see that it had managed to rise from its lowest at 1311.00 before last week's closing.
However, precious metals' in general declined last week, but most of them gained bullish momentum before Friday's closing, where this momentum was due to high liquidity heading into precious metal markets, after investors went into search for a safe haven amidst the shady suspicion in claims that the U.S. economy is recovering.
Meanwhile, gold was the metal that had gained the most out of this blurry outlook, especially since gold has been considered to be a good safe haven throughout decades.
On the other hand, looking at commodity indices, we see they faced major losses; the S&P GSCI index recorded a low of 14.56 points, closing at 496.81 away from 500 point levels that it was previously trading within. However, this major drop by commodities also included crude, where oil is still trading at $77 per barrel today.
All the facts mentioned above, point to demand heading towards precious metal markets as a safe haven; where gold is benefiting from it the most. Today, we see precious metals trading within very narrow ranges; silver traded at 16.37; meanwhile platinum trades at 1322.00, this trading has been compared to the sharp bearish trading stock markets couldn't break away from.
Gold is trading around its NY closing levels, currently trading at 1044.60 precisely as of 02:15 EST; where major liquidity drainage exiting financial markets does not mean that they are exiting precious metal markets.
The pessimism overwhelming the economy could affect precious metal markets negatively; however, this effect could be very limited on gold, where we rule out any bearish corrections or volatile fluctuations on gold, since gold still remains a good candidate for gains over medium term basis since traders are currently in need of a safe haven.