The grimmest commodity market closing tally in almost two years was recorded yesterday afternoon in New York. Awash in a sea of red, the price boards showed a $43.40 drop in gold, a $4.74 (12%) collapse in silver, a $54 implosion in platinum, and a $34 cave-in in palladium. However, the precious metals were not the only ones to reflect the massive selling wave that swept through the sector in the wake of apprehensions that central banks will continue to hike interest rates in order to stave of higher levels of inflation and thus dampen global economic growth; crude oil suffered a near-$10 wipe-out, copper dove nearly 4% and the entire S&P GSCI Index experienced its largest (6.9%) free-fall since June of 2009. The Dow Jones Index shed 139 points on account of the bloodbath in commodities-related equities.
How many margined positions and players in which commodity fell victim to the brutal unwind on Thursday remains unclear as yet. However, the event places into context (a financially devastating one, to be sure) the fact that just when skies appear to be at their bluest (last Friday) a small, seemingly unimportant event can trigger a landslide of epic proportions. Let’s not mince words here: Anyone who fell prey to the “temptations” or sense of investing urgency on display one week ago in say, silver, has a nearly 33% loss to explain to themselves or to their neighbor as of this morning. The triple-digit loss that has come about in gold, although quite large itself, pales by comparison.
The selling storm took many by surprise as it appears that the principal catalyst was actually something that would have emboldened players just one week ago; the fact that ECB President Jean-Claude Trichet postponed a rate hike announcement until possibly after June and noted that his institution will “monitor” inflation levels until such time. “No big deal” would have been the take by commodity-oriented gamblers had such a strategy been on offer last Thursday. In fact, the fact that central banks have not raised rates just yet has been the prime mover of the massive balloon that was inflated in the commodities’ space by spec funds since around the time Mr. Gaddafi apparently lost control of his faculties early this year.
Mr. Trichet’s news conference became the proverbial straw on Thursday morning and the commodity camel sank belly-deep in its aftermath, as the dollar-shorts took it…in the shorts in a big way. Make no mistake; anyone who “dared” call silver a “bubble” or commodities “toppish” was labeled as “nuts” by so-called market gurus as late as Tuesday of this week, and even after silver had clearly shown signs of having been pricked and was fast-deflating. Well, there’s some ‘splaining to do by such armchair psychologists in that regard, now that we have come to this juncture. One Swiss-based commodities’ analyst feels that if the patterns continue, the sector might well give up half of the gains it has achieved in recent months. Don’t know what you might call that kind of “haircut,” but, in conventional circles it is generally a take that factors in a top having been put into place, indeed.