Whack-A-Mole, The European Edition

Gold's price woes mounted overnight, with prices cratering some $16 further after Thursday's near $50 freefall. Spot gold drew close to the $1047 per ounce mark, following its worst single-day rout in 16 months. Risk appetite has been placed in a deep freeze on the heels of yesterday's poor US jobs report. Adding to trouble in the commodities sector is the surge in euro-oriented jitters engendered by the 'whack-a-mole' patterns of debt troubles that continue to spring up over various parts of the Old World.

In fact, those debt troubles and the attendant flight from risk may be at the centre of yesterday's core metals meltdown, while the US jobs data probably played a lesser part. Clearly, the US dollar ought to have slipped on the labour statistics, as perceptions that the Fed would keep certain spigots open for a while longer as a result thereof, should have resulted in selling the currency (and perhaps buying gold).

It was not to be. Not in a market that had built up much of the preceding days' (and longer) gains on little more than hedge fund manager and mining firm executive-issued hot air (all of which makes Mark Hulbert's contrarian-based alarm bells from just three days ago, shockingly prescient).

New York spot metals dealings opened with additional declines, as the US dollar continued its risk aversion-driven ascent against its rivals. Gold was quoted at $1055.60 per ounce, showing a loss of $7.60 per ounce as participants opted to hold off on making significant plays and wait for the following ten minutes in order to ascertain the US jobs report's tenor.

That highly-anticipated report this morning showed that unemployment unexpectedly fell by 0.3% to 9.7% last month, while non-farm jobs showed a loss of 20,000 positions on the month. More importantly, revisions to previous figures showed that 8.4 million US jobs have been lost since the start of the economic contraction in December of 2007. Not a pretty picture, no matter how much lipstick is applied by anyone.

The 'missing link' in the jobs picture continues to be hiring. The fact that jobs not being created appears to be more important than the paring of the loss-side of the equation. For a contrast, see Canada, where the economy created a slew (43,000) of part-time positions, sending the jobless rate down a notch to 8.3%. Dow futures declined in the numbers' wake, and the dollar remained higher, albeit showing less energy than earlier.

Silver was down 13 cents on the open, showing a spot quote of $15.13 an ounce. Some stabilization and partial recovery from this ugly nosedive is now being hoped for, but the charts look quite damaged and cautious prevails, despite the predictable calls for backing various buying trucks up to the ramp and the still starry-eyed $1500 gold prognostications being churned out by the day. They now appear as little more than damage control and salve being offered to investors who have already taken too large a portion of the bait.

Platinum dropped $30 more, opening at $1475 an ounce, while palladium lost another $16 to start at $391 per troy ounce. Crude oil fell to $72.81, while copper lost a further 2.22% to sink to $2.831 per pound. Carmaker Toyota's President was in front of the cameras this morning, apologizing for the company's huge recall and repair campaign, but reassuring the public that the firm continues to put the customer first and has every intention of making things right.

The US dollar remains the beneficiary of this heavy churning action and is manifesting such attention with some very unequivocal numbers - be they on the trade-weighted index (last seen at 80.15) or against the euro (ticking at 1.368 as of early this morning). If there is anyone left out there in pundit-land who still maintains that this is some kind of mirage, well, they must be losing readers by the minute (not to mention fresh portions of their minds). Something else possibly being lost in this turmoil, (and manifest in the behavior of investors) is the credibility of the ECB's boss. Bloomberg reports that: Jean-Claude Trichet is struggling to convince investors that the euro region shouldn't be punished for Greece's budget problems. As Greece tries to control a record deficit and stem a slide in its bonds, Trichet said the economy of the 16-nation euro area is solid and its budget shortfall will probably be smaller than those of the U.S. and Japan this year. The comments yesterday didn't stop the euro from tumbling to a nine-month low against the dollar. However, some people are having a hard time buying the 'solid' argument as well as the success of the cures being applied: Trichet did not convince me, said Stuart Thomson, who helps manage $100 billion at Ignis Asset Management in Glasgow, Scotland. Where does he think the Greek, Spanish and Portuguese economies will be three years from now? Their austerity measures will weigh on the euro area as a whole. Mineweb's Lawrence Williams feels that: The Trichet statement hit the Euro hard leading to a sharp fall against the dollar as investors suddenly saw the dollar as being strong vis-a-vis other currencies and perhaps likely to stay that way for a period. Dollar strength tends to mean gold weakness and as the Euro plunged, gold crashed with it. The spectre of continuing global weakness though hit stock markets in general right across the world - and coupled with recent Chinese moves to tighten domestic availability of easy money there is an element of fear developing in the investment sector and then goes on to ask the multi-million dollar question, which -at this time anyway- reads as: is this the indication of the onset of a double-dip in financial markets as some of the gloom merchants have been predicting? If so what does this mean for gold and commodities? Good question, Lawrence. Good one, indeed. We will go with the operative word that continues to be the most visible at the present time: De-leveraging - along with everything it implies. Part of which, as Lawrence points out is the fact that: downward trending markets tend to lead to illiquidity in the financial sector and as was seen dramatically in October 2008, good assets need to be offloaded for investors to stay afloat along with bad. Yesterday's global margin-call will reverberate in the markets for some time to come. At the very least, some degree of irrational exuberance will be shaved off by fear, and a corresponding degree of level-headed sobriety could (should?) come in and replace it. Nothing could be better, structurally speaking. In the interim, expect knee-jerk reactions to normally less-than-significant news, continued volatility, disoriented individual investors, and good financial headlines material to all be on offer as we close this week out and head into the next one. That's (market) entertainment!

Pleasant weekend wishes. Jon Nadler Senior Analyst