Gold drops $90 from yesterday’s highs

In the Lead: “Shorts to Take It in the Shorts”

Italy, Spain, Belgium and France all banned short-selling of specific equities as of this morning as they tried to address the “benefits that can be achieved from spreading false rumors” [like, say, that defaults or similar are around the corner] and similar speculative activities that have been routing the markets in recent weeks. The French Finance Minister, Monsieur Baroin, declared that his country is “committed to ensuring financial stability and fighting against all forms of speculation.” We can think of a market sector or two (wink, wink, nudge, nudge) where such a frenzy has been amply evident in recent weeks. A similar ban was in force on certain financial stocks in the fall of 2008 in the US as well.

It turns out (no surprise lately) that one day makes a difference of considerable magnitude. Behold the beleaguered Dow add 423 (!) points. Witness gold give back roughly $90 (!) at one point from the overnight high it had etched into the record books in the wee hours on Thursday. Watch silver lose some more ground (what else was new?). Note the 5% cratering of the Swiss franc (which has gained 31% against the euro in 12 months) following posturing by the country’s central bank that a peg to the euro might be in the making.

This morning’s markets opened largely lower in precious metals (platinum being the exception thus far). Gold continued to be sold off and it lost $10.50 per ounce (to $1,757.00) out of the starting gate as risk appetite made a tentative reappearance among market participants. The decline in the yellow metal took place despite a small (0.12) dip in the greenback on the trade-weighted index (to 74.54) but then again in the past several sessions there really has been a notably poor inverse correlation between bullion and the dollar.

Silver lost 11 cents on the open, and it was being quoted at $38.53 per ounce in New York on the bid-side. Not breaching the critical $37 level remains the white metal’s priority #1 while bullish conditions are still considered as becoming valid only above the $42.29 mark. Platinum gained $8 to open at $1,795.00 per ounce while palladium was higher by $4 at $745.00 the ounce. The latter is still hovering only some $50 above its six-month nadir that was recorded near $695 the ounce.

Recent price developments quite conceivably represent a rare opportunity to buy platinum cheaper than it has historically been in relation to gold. Over the past 20 years, the spot price of gold has rarely overtaken platinum’s. The lowest the ratio between the two metals has fallen during that period was 0.93:1 in October 1992. Astute buyers have been returning to the platinum and palladium markets with more enthusiasm than they have shown for some time now. Potentially good news for the noble metals comes from the current situation in the car market, by the way.

Bloomberg reports that “there is an industry-wide shortage of used cars in the US, the product of manufacturing cuts amid slumping sales the last three years. That means some people have effectively been priced out of the used-car market and into brand-new models. As many as 500,000 new vehicles by mid-2012 may have been sold to people who would have [otherwise] bought used [ones].” Continued demand for fresh production vehicles implies more platinum/palladium/rhodium demand than previously estimated.

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