Last week’s “winning” mood among equity and commodity bulls, which was stoked by the statements coming after the EU summit, sustained some serious damage over the past 24 hours Players have begun to recognize that nicely packaged words do not equate action and that when subjected to closer scrutiny many formerly attractive things appear to be full of not only cosmetic cracks but structural faults as well. To wit: The euro took a heavy beating and fell to $1.36 this morning after the dollar climbed by a whopping 1.6%+ against it in the wake of the news that Greek PM Papandreou has unexpectedly called for a national referendum on his country’s bailout parameters as offered by the EU.
Markets did not take the referendum news very well at all; European bank stocks got pummeled and speculators rapidly ditched oil as well as gold, silver and copper while they retreated to the comfort of the greenback’s shelter. Meanwhile, over in Italy, public sentiment against failed lounge singer Silvio Berlusconi has fallen to a new low. The head of the country’s iconic car firm – Ferrari – has asserted that Italy has now come to the “point of no return” and has nudged Mr. B to quit. Just yesterday, in a Gaddafi-like display of pure ego, the Prime Minister declared that there was “no way” for him to “stand aside.”
Spot New York dealings opened solidly in the red for all the precious metals. Gold fell to lows near $1,680 after it easily pierced that pivotal $1,700 mark that appeared fairly solid just yesterday. Targets being mentioned among polled traders are focusing on the $1,675 and $1,650 areas below while the new “major” support has been quietly “pushed back” to the $1,600 mark now (at least in some of the perennially starry-eyed newsletters). There are also those among the professionals who see a swift recapture of the $1,700 level as a possibility, given the nebulosity out there. Hopefully, not too many or sizeable margin call liquidations will develop in the wake of the rout in the Dow and hopefully MF Global is not sitting on bullion contracts that might need to be unwound.
Gold had already sustained its worst drop in a week on Monday, losing nearly $30 on the day in the wake of intervention against the yen by the Bank of Japan and on renewed euro-jitters. Japanese Finance Minister Jun Azumi has made it a point to mention the fact that similar currency market interventions might still be carried out, until such time as he is “satisfied.” Bullion opened the week’s second trading day at $1,690 with a loss of $25 per ounce. The yellow metal is clearly behaving more as a risk asset and is exhibiting the traits of a “trade” as opposed to manifesting its time-honored safe-haven attributes. Thank you, hedge funds.
Platinum and palladium ignored what appears to be shaping up as the best US auto sales level in two years’ time (near 13.4 million per annum) and headed towards the basement in sympathy with their yellow and white relatives. The former lost $35 and fell to $1,560 while the latter dropped $19 to touch $623 the ounce. Rhodium remained static at the $1,650 bid level.
For those of you who want to take the time to learn why the noble metals might be a better bet (in the investment sense of the word) than gold, you might take a closer look at this Marketwatch article by Charles Sizemore on platinum. The Au/Pt ratio chart contained therein speaks volumes about the current (as well as potentially future) value paradigms in gold vs. platinum. Behold the distortion of the decade(s):
Data: Bloomberg, Chart: Sizemore Capital Management LLC