Last week's winning mood among equity and commodity bulls, which was stoked by the statements coming after the EU summit, sustained some serious damage over the past 24 hours Players have begun to recognize that nicely packaged words do not equate action and that when subjected to closer scrutiny many formerly attractive things appear to be full of not only cosmetic cracks but structural faults as well. To wit: the euro took a heavy beating and fell to $1.36 this morning after the dollar climbed by a whopping 1.6%+ against it in the wake of the news that Greek PM Papandreou has unexpectedly called for a national referendum on his country's bailout parameters as offered by the EU.
Markets did not take the referendum news very well at all; European bank stocks got pummeled and speculators rapidly ditched oil as well as gold, silver, and copper while they retreated to the comfort of the greenback's shelter. Meanwhile, over in Italy, public sentiment against failed lounge singer Silvio Berlusconi has fallen to a new low. The head of the country's iconic car firm -Ferrari- has asserted that Italy has now come to the point of no return and has nudged Mr. B to quit. Just yesterday, in a Gaddafi-like display of pure ego, the Prime Minister declared that there was no way for him to stand aside.
Spot New York dealings opened solidly in the red for all the precious metals. Gold fell to lows near $1,680 after it easily pierced that pivotal $1,700 mark that appeared fairly solid just yesterday. Targets being mentioned among polled traders are focusing on the $1,675 and $1,650 areas below while the new major support has been quietly pushed back to the $1,600 mark now (at least in some of the perennially starry-eyed newsletters). There are also those among the professionals who see a swift recapture of the $1,700 level as a possibility, given the nebulosity out there. Hopefully, not too many or sizeable margin call liquidations will develop in the wake of the rout in the Dow and hopefully MF Global is not sitting on bullion contracts that might need to be unwound.
Gold had already sustained its worst drop in a week on Monday, losing nearly $30 on the day in the wake of intervention against the yen by the Bank of Japan and on renewed euro-jitters. Japanese Finance Minister Jun Azumi has made it a point to mention the fact that similar currency market interventions might still be carried out, until such time as he is satisfied. Bullion opened the week's second trading day at $1,690 with a loss of $25 per ounce. The yellow metal is clearly behaving more as a risk asset and is exhibiting the traits of a trade as opposed to manifesting its time-honored safe-haven attributes. Thank you, hedge funds.
Platinum and palladium ignored what appears to be shaping up as the best US auto sales level in two years' time (near 13.4 million per annum) and headed towards the basement in sympathy with their yellow and white relatives. The former lost $35 and fell to $1,560 while the latter dropped $19 to touch $623 the ounce. Rhodium remained static at the $1,650 bid level.
For those of you who want to take the time to learn why the noble metals might be a better bet (in the investment sense of the word) than gold, you might take a closer look at this Marketwatch article by Charles Sizemore on platinum. The Au/Pt ratio chart contained therein speaks volumes about the current (as well as potentially future) value paradigms in gold vs. platinum. Behold the distortion of the decade(s):
Data: Bloomberg, Chart: Sizemore Capital Management LLC
Silver shed 6.2% falling by over $2.10 and underscoring once again that when it finally moves, it does so with a speed and depth that ought to be frightening to the small investors who are routinely duped into treating it as some kind of crisis hedge asset. Copper and nickel slid by 4.6% and black gold was off by 3.5% to $89.55 per barrel. The dollar was up near 77.6 on the trade-weighted index and US stock futures pointed to an ugly day in the making, at least as far as certain bank equities were concerned. European markets lost around 6% (France and Germany) as investors ran for the exit doors this morning. Traders also partially attributed the fresh rout in commodities to the overnight news that China's large manufacturers were not exactly roaring ahead; in fact the country's PMI metric fell to 50.4 last month.
That is a figure that skirts contraction and is the lowest since February of 2009. Industrial metals reflected this statistic and the apprehensions it engendered in the manner mentioned above. European and US manufacturing metrics are waiting in the wings and will be released shortly, as will a private China PMI survey reading that is coming from HSBC. Tuesday's opening bell sounded a tad like a funeral chime for the Dow; it collapsed by over 275 points shortly after coming out of the starting gate.
Not much beyond silence is however coming from MF Global this morning; the LME suspended the firm from trading and US regulators are now looking into whether hundreds of millions of bucks are in fact missing from client accounts. MF bet over $6 billion on European sovereign debt and in lieu of that bet paying off it promptly resulted in a loss of nearly $200 million late last month. Still to be ascertained is what positions and in what assets the firm might be forced to liquidate if things go from worse to...terminal. The NY Times article on the firm brings up a potentially troubling development with the account of the missing funds ($700 million?) from client accounts. Missing, commingled, who knows?
The paper notes that the unaccounted-for cash could violate a fundamental tenet of Wall Street regulation: Customers' funds must be kept separate from company money. One of the basic duties of any brokerage firm is to keep track of customer accounts on a daily basis. Whether or not that commandment of the brokerage industry has been breached remains unclear, but the current silence from MF's head, Mr. Corzine, is deafening, at best.
Well, at least Moody's appears to be in a better...mood when it comes to the ratings of the USA. The agency said today that even if the congressional supercommittee on deficit reduction fails to reach a consensus by the official November 23 deadline, it (Moody's) will not change the current rating. As things stand right now, automatic cuts amounting to $1.2 trillion will take effect even if the 'gang of twelve' comes to no agreement on shaving $1.5 trillion from the budget books of America's government.
Jon Nadler Senior Metals Analyst
Kitco Metals Inc. North America
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