G'day. So much for some consolidation in the metals and enjoying a few quieter days!!! Someone decided that China is a problem and that all commodities are way over priced. Base metals got crushed as well as the precious metals. Gold traded as low as $383+ spot, and I heard one of the talking heads on Bloomberg tell us gold and silver have been hammered because of the dollars strength blah blah blah... All I'm hearing is Funds bailing out of the sector, China, and the dollar is still only 1.18Euro... hmmm. I guess everyone has forgotten the inflationary mess that the Fed has created and that we are now finally seeing evidence of, even through the dodgy CPI numbers recently released.
The silver price crushing certainly wasn't anticipated in Asia or early Europe but once the LME got going and the whole metals complex pee'd its pants, it was game on. Fund liquidation on the inability of silver to break up through $6.30 is cited as a catalyst by one of my counterparties. There was a noted lack of depth on the bid side so it was easily driven lower. Talk everywhere about a China slowdown and obviously that has an effect on the metals demand sentiment. US Dollar strength is a little off the mark I fear. Gold and silver are not trading in reaction to dollar moves, this is much bigger than that. Silver has been taken down aggressively from a high about $8.40 to today's low of $5.82 in about 15 trading sessions and funnily enough is back at its 200DMA after falling 30%... go figure. Indian physical buying was noted below $6.
Gold broke through the $390 level that had held so resiliently on previous attempts. Stops were triggered that took us down to $386 and then a few momentum players jumped on the break. Indian premiums today were easily accommodative of imports even with gold at $397. I expect that there will be reports in coming days of increased physical buying from all the usual suspects and am comfortable increasing some physical holdings on this dip (not advice). I suspect we will get a bounce that will stop out a few of the new shorts but am very wary of the market at present. My tech guys think we may even break down to $360 if we get some concerted liquidation in thin markets.
Metals shares all got crushed some more today and are now trading at levels that many would have killed to be long at, only 2 weeks ago. Many stocks have basically halved in the last couple of months. Volumes today are large with many issues trading more than their average last 20 days volume, by 12 noon. The AMEX Gold Index (HUI) trades at 178, off some 16 points (or nearly 10% from yesterday). I dunno if they stabilize here or go lower again. The only thing we do know is that there is gonna be a lot of physical metal changing hands whilst the price is below $400 and even more if we hang around down here at $385. The buyers of physical will be all smiles today and the owners of metal equities will probably be a little downhearted, and with good cause. What people do about it is their own concern and it will be interesting to see how many people fold and quit the game after enduring this brutal month.
The "China syndrome" is a little disconcerting although I am surprised it was only "discovered" in the last few weeks. China has a billion people who all want a shot at some sort of quality of life. They are the manufacturing engine of the world and will be for the foreseeable future. They will certainly slow down at some stage but I don't know that their manufacturing sector's demand levels will fall in the manner as has been priced into the commodity markets. Sure, China is a big part of the demand issue in Silver although I would suggest that the industrial demand side is not what will drive Silver over the next few years, I expect that supply/stockpile and maybe even some sort of re-monetization of silver could well be issues going forward. Let's see what gives going forward.
Expect more and more volatility in the metals and shares in the coming days as well as in the currency markets. My gut says to load up some physical here and my head says to wait till we get some bottoming signals.... On days like today I think the gut rules (again simply my humble opnion).
Enjoy the evening and I'm sure the Leafs will win their hockey tonight, so as to drag out the pain and suffering that we fans endure each April/May.... Surely they will lose in 7 games, in overtime... again.
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