Gold falls $130 in largest decline in 30 years

In the Lead: “[Un]Safe Havens”

If anyone thought that Friday’s heart-stopping $100+ free-fall in gold was, well,…heart-stopping, they had better be thankful that they were asleep overnight as the yellow metal fell some $130 and touched the $1,531 (not a misprint) level. Safe-haven seekers remain on a quest that thus far has yielded only one “safe” asset and not much of a “haven” in many a market.

Financial writers quickly ran out of superlatives and, frankly, out of comparisons as well, because while gold was set to notch its largest decline in nearly 30 years, the aforementioned $128.40 swing from high to low actually represents its largest such gap yet on record. As for the question of what kind of “safe-haven” is to be found in an asset that swings from 2 to 7 (!) percent during one-day market sessions and does so precisely at the time when it should be soaring to the stratosphere due to global angst, well, we will leave that one hanging with a sizeable question mark…

Spot gold dealings opened $41 lower this morning, with a bid-side quoted at $1,616 per ounce while spot silver dropped $2.28 to start Monday’s session off at $28.65 the ounce. Platinum was down $56 at $1,552 and palladium slipped $3 to the $631 per ounce mark. No change reported in rhodium; it appeared to be immune to the carnage elsewhere in the complex with a bid quote at $1,800 the ounce. In the background, the US dollar was relatively steady at $78.20 on the index while crude oil attempted a small comeback with a 27-cent gain that brought it to $80.12 per barrel.

The recent implosion in precious metals has now made for the largest premium in gold over platinum that has been manifest in two years’ time. SocGen analysts opine that the premium between the two metals may yet widen to as large a gap as 26% next year as investor anxiety over the state of the global economy keeps the noble metal beneath its ten-year average premium of roughly 39% vis a vis gold. Still, if the late 2008-early 2010 period serves as any example, the price of platinum basically doubled over the following 18 months while gold only advanced 38% as perceptions of recovery across the globe benefited the noble metal to a much larger degree.

The quest for cash and the preference for liquidity were best characterized by UBS analyst Edel Tully who noted that “gold is a victim of its own success as liquidity trumps.” Curiously, some media outlets remarked that “many analysts” had warned about the extreme levels of speculation and potential risks that had developed in the gold and silver markets. Funny; we only seem to have found. one or two amid the uber-bullish throngs ranging from mining firm CEOs, to newsletter scribes, to fund managers. Hopefully, soon, we will learn just which funds let go of how much of the precious metal while their front-men were out there extolling its virtues at the same time.

At least one former such uber-optimist has changed his (short-term) forecasting tune in the wake of recent events in gold. Marc Faber, he of Gloom, Boom & Doom fame, has warned that the yellow metal could drop to $1,100-$1,200 if the $1,500 support area gives way. Who knows what kind of hate mail of meaningless, silly wagers he will now be the recipient of for uttering such “heresy?” We know.

In the case of silver, the overnight 16% slide (it reached $26 precisely as we had projected in the event of the $30-32 support failing to hold) produced the unenviable record of the worst three-day decline in the white metal ever tallied. The open interest in “poor man’s gold” now stands at the lowest level of 2011 and it reflects – in the words of Standard Bank (SA) analysts – “serious doubts on silver’s prospects.”

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