May Day was as ugly a day in the commodities markets as many can recall. Here is the summary of the day:
Despite the lack of a clear pause signal in yesterday's Fed announcement, the various markets treated yesterday's posturing as the pivot point beyond which they can no longer reliably depend on ever cheaper dollars to fuel speculative binges in commodities. The greenback turned sharply higher, trading at 73.33 on the index (up .75!) and 1.544 against the euro. Crude oil fell $3 to $110.47 and it also sucked whatever energy was left in gold out of it today. Again, just so we do not mistakenly believe that this is some sinister plot to single out and derail gold, note that copper was off 4.35%, aluminium 3%, zinc 3.5%, lead 6.2%, and soybeans fell limit while wheat plunged to a five-month low. Ponder what today's numbers may have looked like, had the Fed held tight, and not cut at all...
New York spot gold remained down from the open, and then headed much lower, losing 3.1% or more than $27 per ounce in value today, and coming within one dollar of its previous all-time peak of $845 per ounce. Gold now finds itself nearly $190 off the mid-March peak. Time to shred those e-mails that promised that such a number would never again be seen...Tomorrow's session could well be equally turbulent as participants realign trading positions not just as the weekend approaches, but as they sense a shift in sentiment that is not limited just to their own trading pits.
Last night, after the Fed's cut we asked just how long its effect might last on gold and the dollar. Evidently, it lasted about as long as cheap lipstick on a May prom date. After an encouraging attempt to regain composure and march over the $880 level, the metal succumbed to major renewed selling pressure, as the one asset that in fact regained its recent momentum, turned out to be the US dollar. Rotation out of commodities and apparently into equities (the Dow gained nearly 200 points) continues to be the name of the game after the implied Fed signal. Today's jobs report was eclipsed by an apparently still alive consumer, who, despite higher gas and food prices, kept spending in March.
The potential for buyers to be able to pick some gold up at lower levels now becomes more likely once again, as the alternative rise turned out not to have any real momentum behind it. Thus, $822 (the 200-DMA) and (possibly) $800 loom (or beckon, if you are a would-be buyer) on the near-term horizon. It will be interesting to learn how much gold will leave the ETF in the wake of today's selling stampede. It has already lost better than 10% of its gold bars over the past ten days.
We do however, expect that India will come out in greater numbers this weekend, and buy some metal ahead of Akshaya Tritiya next week. This is, after all, the approximate range of values they have been expecting in the bazaars for a few weeks now, and such buying could lend some temporary support to a market that has been brutalized of late. Thereafter, the selling could well resume. Silver lost 72 cents to $16.12 and the platinum group metals declined along with the rest of the complex. Platinum fell $64 to $1869 and palladium dropped $13 to $410 per ounce, respectively.
Watch for the 5:15 pm closing levels, and brace for an active (but very nervous) Friday.