By Jon Nadler

The commodities cave in that started in New York yesterday continued to unfold overnight and throughout the last trading day of this week as fund after fund took the money and ran. What we now have in the making here is the worst week for gold prices in twenty nine years.

Of course, gold was not an isolated case of landing gear failure this week. Just look at silver, platinum, crude oil, soybeans, copper, coffee, sugar, etc. A sea of red on the price tickers, with losses of from 2 to 5%. Behold the effect of speculative funds having worked their way into relatively tiny markets that were volatile to begin with. Sector rotation and then some...

New York spot prices traded under continuing liquidation pressure all day, losing another $29 of value per ounce to $914.00 at last check, and the best thing that can be said about the situation is that prices are near the starting point of their last rally at $915 and that they are not at the low of $903.60 we saw earlier on. The damage however, is extensive. Silver lost another $1.48 or 8.5%, falling to $16.94 per ounce. Platinum dropped $39 to $1865.00 per ounce and palladium lost $18 to $438.00 as the entire complex was battered by the freefall in gold.

In the interim, the dollar was making additional gains, falling under $1.55 vs. the Euro, and rising to 72.72 on the index. Not spectacular gains for the greenback, but certainly enough to turn its very vocal morticians into the ones with pallid faces for a change. News that Credit Suisse will not likely report a profit after having to write off at least a couple of billion on you know what exposure hardly made a dent in today's market. Sentiment has clearly soured for the moment.

The same cannot be said about essential fabrication demand on the other hand. My good friend Albert Cheng over at the World Gold Council in Singapore, noted robust gold demand emerging in Asia on the $130 price froth blow off and was encouraged about its return. We are willing to bet that those who flat out rejected the idea that gold jewelry demand had become irrelevant as investment funds stampeded into bullion, are now looking very kindly upon the bazaars of India and the souks of Dubai as the possible safety nets that could prevent a real meltdown in values. What we have had thus far, is a realignment in price and in perceptions, but not one that would yet qualify as a mortal wound to the bull.

Up here in Canada, these woes are just a bit more amplified. The Globe and Mail's Report on Business describes the situation as follows:

Commodities have been through more than a few bumps over the past several years, but they have always bounced back to new highs. Is this latest bump anything different?

Skeptics have been noting for some time that the fundamentals supporting commodity prices the strong demand from China, the weak U.S. dollar, the threat of rising inflation and the uncertain geopolitical situation in many parts of the world no longer explain the rise this year that sent the charts of many commodity prices into an unsustainable parabolic surge.

Speculators, it seems, have been providing the main thrust as they seek refuge from volatility. However, with the U.S. equity market suddenly looking healthier following aggressive rate cuts by the U.S. Federal Reserve, there is likely a rush for the exits now that is also driving the loonie down.

What's for sure is that the consequences of a protracted downturn are nasty. Commodity producers represent about half of the market capitalization of the S P/TSX composite index, versus just 18 per cent for the S P 500.

It is wait and see at this juncture. While a rebound is still possible, we need to get a better sense of where the unwinding by the longs could take values. The markets are feeding on their own momentum right now and not much in the way of news seems to matter. Fast turns could become routine. Sleepless nights may yet follow.