Gold and silver selloff in wake of reactor problems

SPECIAL BULLETIN – The Japanese Earthquake and its Aftermath

A massive meltdown in precious metals and key commodities followed the massive meltdown in Japanese and world equities which followed the apparently imminent meltdown at the Fukushima nuclear plant in Japan. The overnight news that the power facility’s 19 tonnes’ worth of highly radioactive fuel rods have spent some time period being fully exposed, rattled global markets in a manner basically not seen since the great crash of 1987. The Nikkei benchmark average suffered its third worst ever loss, falling by more than 10.55 percent - the highest amount of value lost since that fateful Monday back in October of1987.

Overnight tallies of declines in assorted global stock indices revealed a bloodbath taking place following the spike in investor apprehensions related to Japan’s alarming woes and based upon the rise of risk aversion to a degree not seen since the deflationary scare of mid-2008. To wit: The MSCI World Index lost 2.2%, the S&P futures fell 2.3%, Seoul stocks lost 2.4%, Taiwan equities fell 3.4%, Stoxx Europe dropped 3.2%, and the list goes on. Germany announced the shutting down of all pre-1980-built nuclear power plants.

One would have logically anticipated at least a $50 rise in the one asset thought to be the ultimate safe-haven this morning, and new records being etched into the books at above $1,500 an ounce. History teaches that when paper assets slide, gold ought to shine and do so brighter than ever. Alas, this was not to be. The many months’ worth of ‘tandem” trading by hungry hedge funds yielded an equally sympathetic sell-off in the yellow metal this morning, as positions were unwound at lightning speed for a variety of reasons.

Whether speculators were anticipating sizeable enough margin calls from their equity positions to have to liquidate gold holdings, or whether they were simply taking refuge in the US dollar (which we had been assured would expire any day now), remains to yet be sorted out. The net result was one and the same: a massive exodus. The spot price of gold traded as low as $1,380.10 per ounce; some $65 lower than last week’s record, and about $48+ (about 3%) lower than Monday’s settlement.

Silver got the hitherto out-sized speculative hedge fund stuffing knocked out of it in a hurry this morning, losing more than $2.35 or about 6% early in the New York session and falling to $33.56 the ounce. Equally substantial declines followed in platinum and palladium as Tuesday’s trading action started to unfold.

The former fell as much as $66 per ounce to touch morning lows at the $1,689.00 mark and the latter dropped $44 to reach the round, $700 figure early on. The prestigious Gartman Letter sounded the alarm this morning in the following fashion: “If gold is under duress, silver, platinum and palladium are under even more, for they’d gone higher in parabolic fashion and they now have the greater distance into which to fall before finding any reasonable, logical support.”

However, on this eventful morning, we also take note of the fact that crude oil suffered an equally…crude trading fate on the day, losing about 4% in early going and declining to the $97.28 per-barrel level as specs dumped everything in sight in favor of the greenback. That type of nod towards the US dollar – with all of its flaws – is reminiscent of the summer of 2008 when it looked for all the world as if deflation was knocking on the door. Copper collapsed by over 2.2%, reaching just under $9K per metric tonne in London on the LME.

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