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Gold is trading at USD 1,613.00, EUR 1,198.37, GBP
1,040.91, JPY 123,180, AUD 1,654.44 and CHF 1,465.41 per ounce.
Gold’s London AM fix this morning was USD
1,615.00, EUR 1,198.96,and GBP 1,041.87 per
ounce.
Yesterday’s AM fix was USD 1,730.00, EUR 1,279.68,
and GBP 1,119.81 per ounce.
Gold and silver were caught in the headlights of the
"Risk Off" juggernaut last week, the carnage was not helped by a
poorly timed margin increase out of the Comex and
Shanghai Gold Exchange. Asian markets maintained the bearish slant
overnight with the NIKKEI selling of 2%; gold was at one point off by more
than $100/oz, trading at $1,550/oz,
but has since staged a modest recovery and is trading now at $1,613/oz.
Markets Move to Cash
Why Did Gold Sell Off So Aggressively?
Large liquid asset prices tend to approach efficiency,
over time. When new information is ingested by the market the price of
securities is adjusted up, down or not at all. Currently markets in general
are nervous as they were caught off guard by the Fed statement last week,
which outlined a weaker U.S. economic growth forecast. Moreover, the
negative sentiment is being compounded by commentary from a host of world
leaders and institutions, urging action on Europe and debt problems in
general. At times like this leveraged market participants (hedge funds
and proprietary trading desks) must assign a fair value for the holdings that
they own. Trading desks must adjust books for a slower economic growth
forecast, which creates lower corporate earnings and translates into lower
stock prices. The Fed comments sparked the sell off.
All this activity feeds off itself and the markets can
quickly find themselves in a destructive downward spiral where fairly valued
assets are sold off aggressively. Margin holders of assets are forced
to sell, active traders, trying to get ahead of the market position
themselves to profit from these market moves. Passive market participants,
typically the general public, will then look at this market activity and
consider selling as they will logically ask themselves, "What is it that
the market knows and that they do not?".
Eventually over time a consensus begins to form and the volatility of
the markets (the velocity of price change) begins to calm down, until the
next quantum shift in market knowledge occurs.
The fundamentals underpinning gold have never been
sounder. The correct price for gold is a matter of interpretation but it is
fair to say the resent price moves in the metal have nothing to do with a
change in the fundamentals. Indeed, the selling activity was a mass
liquidation event that affected most asset classes across the board and
benefited the U.S. dollar as investors went to ground, hiding in cash.
It is important to note that the underlining problem of
debt and the issuing, redemption and/or forgiveness of debt are the questions
being tackled by the political classes. The world economy is at a cross roads
with many sub-optimal imbalances dragging back growth. Most if not all of
these imbalances are the result of parochial and ill-conceived fiscal and
monetary policies of powerful countries that refused to take in account the
global affects of their actions. Capital markets
are increasingly taking their cue from official actions as opposed to the
fundamentals of capitalism. Unfortunately for policy makers, the confusion
that they are inadvertently sowing, viz-a-vis the weaknesses of their institutions, is in its self eroding confidence and thus restraining consumer
spending. Washington and Brussels are attempting to address the problem,
but "Do they have the political mandate to effect the necessary
changes?" is the question of the hour.
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SILVER
Silver is trading at $28.60/oz,
€21.15/oz and £18.42/oz
PLATINUM GROUP METALS
Platinum is trading at $1,548.20/oz, palladium at
$626/oz and rhodium at $1,625/oz.
NEWS
Financial Times
Gold Slides as Investors Scramble for Cash
Bloomberg
Commodities Drop to 10-Month Low as Silver Plummets
on Debt, Growth Risk
COMMENTARY
Market Watch
In euro crisis, Merkel is replaying 1931
Mark O’Byrne
Goldcore
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