Gold falls $130 in largest decline in 30 years

In the Lead: “[Un]Safe Havens”

Commerzbank analysts go one step further and (unsurprisingly) now warn that silver “is not suited as a store of value and that [it] is behaving more like an industrial metal.” Curiously, the massive slide in precious metals failed to ignite Indian appetite for them in part as now represents an inauspicious time to buy metals and as fears that further losses are in the cards manifested themselves. As mentioned before, it was a dark night; one to pull the covers up and hide during. Well, maybe not in China, just yet. The country has just witnessed the launch of its first gold-vending machine. What kind of “sign of the times” that such a “premiere” represents, we will keep wondering (or, not).

To be fair, gold-hungry shoppers who utilize the machine will only (!) be able to insert one million yuan into its shiny slot and take out no more (!) than 2.5 kilos of yellow metal. So notes the press release. Groan. No takers for the 5.5 lb gold withdrawal maximum just yet. Maybe a visit by “Don” the Trump to Wangfujing Street in Beijing is in order?

The mass-exodus from the commodities’ niche is approaching Calgary Stampede levels and the accompanying devastation is in evidence across the niche; platinum was trading at its lowest level in nearly 16 months while palladium touched lows not seen since October of 2010. We could go on with copper (14-month lows) crude (2-month lows) or the S&P GSCI Spot index (10-month lows).

Reflecting such sell-offs or perhaps contributing to them, money managers slashed their net-long positions by 20% in almost all commodities in the week that ended Sept. 20. In the interim, and for the protection of some, the CME has raised the necessary margins required to trade Comex gold and silver by 21.5% and 15.6% respectively, effective with tonight’s closing. The margin hike is thought to add to selling pressure and could yet aggravate that which is now being labeled as “serious near-term chart damage” in the yellow metal. Who knows how the next CFTC report on futures and options positioning and margin requirements will shape up…

Long-time and level-headed market observer Ned Schmidt notes in his most recent Value View Gold Report comments that “We also need to keep in mind that the big holder of GLD is in trouble. The Paulson hedge fund, largest holder of GLD, has had a disastrous 2011 thus far. For example, they own Bank of America and the collapsing Sino Forest. We would expect that they will soon need to start liquidating their GLD to meet withdrawals and lower the fund’s risk.”

Perhaps they have, already. One will soon know exactly who sold what, when, and where. In the case of silver, the VVGR observes that “[silver] broke down through the last remaining support level of hope, $32.25. That silver is in a bear market should be obvious even to the silver charlatans on the web. Bear markets only end when price reaches a gut wrenching low, and silver is not immune to that reality.” Fear not; the blogosphere overnight still offered headlines that proclaim silver to be “the investment of the next decade.” In this case, one might want to take that proposed timeframe…ummm, literally.

Until tomorrow (and who knows what that might bring, these days?)…

Jon Nadler is a Senior Metals Analyst at Kitco Metals

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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