Stocks, commodities and precious metals all experienced violent sell-offs yesterday on the back of the US Federal Reserve’s pessimistic assessment of the US economy, and fears that central banks and politicians in developed nations are not getting to grips with the debt crisis.
Industrial commodities in particular were badly hurt by the downturn in sentiment, with copper, crude oil, platinum and palladium all suffering sizeable losses. Front-month Comex silver futures lost 9.6% to settle at $36.54 per troy ounce – one of the heaviest down-days in silver for the year. Meanwhile, as in the previous day’s trading session, algorithm selling by hedge funds led to falls in gold prices, with traders covering losses in other assets with the cash from gold sales.
Market sentiment has been given a small lift this morning, however, by a G20 pledge of a “strong, coordinated” response to the problems afflicting the global economy. The organisation has also promised a “bold action plan” to be released at the Paris G20 in early November. Significantly, today’s pledge notes that “central banks will continue to stand ready to provide liquidity to banks are required” – a euphemistic way of saying that central banks stand ready to print unlimited quantities of money in the event of serious problems for banks.
Hopes that the Chinese may ride to the rescue and contribute towards a bailout of the eurozone appear to have been scotched for the moment. Readers who want a better understanding of the present monetary relationship between China, the eurozone and the USA would be well advised to read James Rickards's latest King World News article. As he notes: “If you want to see QE3 ahead of the market, watch the euro.”