Talk about a roller coaster ride in the gold market – up strongly overnight, down during the early New York session and then back up again after noon in New York before settling slightly lower on the day. Gold was caught in a crossfire between safe haven buying and a huge, and I do mean HUGE, dumping of commodities across the board. The only commodity that I could see that was up was natural gas and that was mainly due to the cold weather snap currently hitting the Northeast – everything else was smacked and smacked hard as funds unloaded everything as the US equity markets imploded.
The gold shares as indicated by the HUI and the XAU were down 20 points and 10 points respectively at one point early in the session before both indices cut their losses in half by late in the morning. They are currently weaker but well off their early lows as I write this.
Bonds once again received the usual lemming like response to plunging stocks after going through a brief period last week in which they were moving lower alongside of equities. It seems as if old habits die hard. Those buying bonds are going to be taught a painful lesson as the upcoming massive supply surge will continue to weigh on Treasuries, particularly the long end. For today however, the bond bulls are in charge as they squeeze out all the shorts and produce a sharp, short-covering rally.
The equities are now trading at 12 year lows after violating key support levels in the overnight trading in the futures pit. That brought in more selling during the course of normal trading hours which utterly mauled them. Investors are reacting to the news surrounding AIG and the inept manner in which the feds are handling this entire financial debacle. I have said it before and will say it again – the market has lost all confidence in the new administration as the policies they are following are a recipe for economic disaster. Soaring , out of control, indeed, wild-eyed spending, talk of elimination of home mortgage interest deductions, daily bashing of producers and achievers, tax hikes, confusing statements from various policy makers and officials, all have led to an attitude that looks to be approaching total despair. I know of several small business owners who have told me categorically that there is no way in hell that they are going to hire anyone new because they do not trust what the feds are going to do next. You are talking about the chief source of new job creation in this nation and those folks have had enough already of this new administration after not even being in power for two months! Hold onto your hats – it is just going to get worse if the past month is any indication of what we can expect.
Remember, markets attempt to put emotions aside when evaluating policy and act accordingly and they have voted with their feet. As such, I can easily see a breach of major support in the S&P of 700 and a fast plunge in the Dow to near 6,000 at the current rate of selling. What has to wonder exactly what news might arise that can stem the loss of confidence and arrest the growing attitude of despair. I should also note one thing – shares of a certain handgun manufacturer are trading strongly higher. Looks to me like many Americans are “getting it”.
Back to gold since it has been affected by the movement in the equity markets and will continue to be for the foreseeable future. The selling originated from fund sources whose computer selling programs indiscriminately dumped a wide basket of commodities across the board. That selling is quite large as can be seen by the extent of the price moves in other commodity markets. Sugar was slammed alongside of crude oil which then hit corn which spread to the bean pit. Wheat was crushed by the rally in the dollar which looks to be embarking on a bull run if it can push through very strong resistance that lies up near the 92 level on the USDX. The Dollar rally will not last but for now, it is wining the safe haven flow race merely by default because it is so bad everywhere else. I find it ironic that the source of this economic contagion, most notably the US, is not somehow perceived to be the best place to shelter one’s wealth. Scary isn’t it?
While not exactly anything to get excited about, I view gold’s ability to withstand the commodity-wide selling onslaught as impressive. It is hard to understate the extent of the selling that hit these markets today. To see buyers be able to absorb all that selling and push the market high enough to actually get it into positive territory is a notable achievement even if the bulls failed to secure a positive pit session close. Buyers of physical gold take note – if you want to acquire the physical metal do it when prices are down.
I am watching the price of corn and am wondering what farmers are going to do this season after watching the market push prices down so low. Imagine having to make a decision that affects your family’s income when you wonder if you can put a crop in the ground and actually make enough off of that crop, assuming you can bring one to maturity, to recoup your costs and even recompense you somewhat for all the labor involved. Folks are used to eating but had better not take the American farmer for granted.
One last thing – platinum has so far been able to maintain its footing above the $1,000 mark –again, fairly impressive given the severity of the economic news and its industrial metal role. It is evident that a goodly portion of the platinum buying is coming from safe haven flows.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini