Silver ETF drops nearly 67 tonnes

In the Lead: “Milling Rumors”

So, what really changed in the markets and among players’ attitudes last week? Quite a lot, actually. For one, Italy, Spain, Belgium and France all banned short-selling of specific equities on Friday as they tried to address the problem of 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 was “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.

Meanwhile, the Swiss National Bank was rumored to be all set to go with its plans to place a “target” for the value of the currency into effect. The SNB really wants speculators to stop stampeding into the country’s currency and push it to parity with the euro. Trading room rumor has it that if the SNB manages to put things into motion, we could be facing a spectacular decline in the value of the “Swissie.” The talked-about “target” is being estimated at 1.25 versus the euro.

On the other hand, if you are going to buy the rumor that the surprise decline of 7,000 claims for unemployment benefits did “the trick” for all of these markets last week, there are still some offered for sale ads for some very moist patches of Florida land available to consider… Jobs figures aside, Dr. Nouriel “Doom” Roubini places the odds of a global contraction at higher than 50/50 at the present time and warns that the next 90 days will be decisive in the matter.

Some parts of the world (see Greece which shrank 6.9% economically speaking in Q2) are already mired in contraction while other (see France which recorded zero growth in the same period) are apparently skirting such a paradigm. Economists warn that unless crude oil (currently at $85.62 pbbl) falls and falls hard (to, say, under 3% of GDP as an expense factor) the world risks recession. At $100 per barrel, black gold represents a 5% cost factor-to-GDP. Now, consider $100-to-$130 per barrel crude and “Dr. Doom” starts to make a lot of sense…

More evidence that something is palpably changing in these markets in terms of attitude (and positioning) comes from the fact that – and you are strongly advised to take note of this – foreign exchange traders have reduced their short bets against the US dollar by the largest amount of contracts yet on record. This as the demand for U.S. Treasuries has recently soared skyward amid rising apprehensions that the global economic recovery may have hit a stumbling block.

While rumors were being spread in various hard money publications last week that gold’s surge to new records was mirrored in a “mass-exodus” by everyone and his cousins from the greenback, the facts reveal that aggregate inflows into the U.S. dollar last week amounted to almost four times the average amount compared with the previous year, based on data supplied by Bank of New York Mellon Corp. which is the largest custodial bank in the world. This, while stocks took an epic drubbing that harked back to 2008.

As bad as the $3 trillion in recent losses in US equity values have been in terms of headline-making material, do consider the fact that amid all the bloodletting, corporate insiders have been quietly buying their own stock at the highest clip since the Dow reached its 12-year nadir in early 2009. Food for thought, that. These are the very people who have the inside knowledge of what their own shares ought to be worth, or will be worth down the road. No rumors needed; just the basic balance sheet facts.

Gold’s steepest drop in nearly two months can also partially be explained by its previously heavily overbought conditions (its RSI near 84, 95% bullishness levels) and the emergence of good old-fashioned profit-taking. Additional justification may also be found in the CME raising margin requirements for playing in the golden casino. You may probably recall what that brought about in silver on May Day and thereafter.

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