Gold News

Gold and Silver Fall As Credit Concerns Roil Markets Again

From Chris Mullen at GoldSeek.com...

BNP
Parabis suspended three funds (stopped withdrawals) due to problems in the
U.S. subprime mortgage market impacting the value of the funds and this
event sent a new wave of credit worries throughout the rest of the world’s
markets.

Stocks, oil, gold, and the euro
all fell as a result on increased worries over slowing economic growth stemming
from subprime contagion and the spread of credit risks. This also encouraged another round of
unwinding in the yen carry trade which furthered losses in most markets as
traders sold their investments to buy back the yen they had borrowed in order
to take positions in those investments in the first place, thus resulting in a
drop in nearly all investments.

The panic
was so bad that the “European Central Bank tried to calm markets by pumping a record
94.8 billion euros ($130.6 billion) in overnight funds into the money
market” and “the Federal
Reserve carried out a $12 billion one-day repurchase agreement, on top of
an earlier $12 billion 14-day repo… as an attempt to boost liquidity after
overnight interest rates spiked.”

 

Gold fell
along with the majority of assets as traders were forced to sell any and
everything in their portfolios to raise cash and buy back borrowed yen among
other things. It seems counterintuitive
that traders would sell the ultimate safe haven asset to do so, but many are
motivated to sell assets that show gains in order to offset losses in other investments
that they are forced to cover due to margin calls and other necessary
obligations.

Bottom-line, this looks
like a short-term and erroneous reaction in gold and such events have proven to
be short-lived opportunities in the past.

Gold
began its fall in London and dropped to as low as $659.50 in early New York
trade before it bounced around at slightly higher levels in the low $660s for
the rest of trade, but it still ended near its low with a loss of 2.07%. Silver dropped to as low as $12.66 before it
rebounded about 1% off its low by late morning, but it then fell back off in
afternoon trade and ended with a loss of 3.36%.

Euro gold
fell to about €483, platinum lost $15 to $1,269, palladium lost $2 to $359, and
copper fell roughly 4 cents to about $3.58.

Gold and
silver equities fell over 3% in the first 20 minutes of trade before they
rebounded and saw less than 2% losses by late morning, but they then fell back
off in afternoon trade and remained roughly 2.5% lower into the close.

Oil fell
on worries over slowing economic growth and on a NOAA forecast that predicted
fewer tropical storms, but losses pared in all energy prices after it was
announced that natural gas inventories built a smaller than expected 42 billion
cubic feet.

The dollar
rose strongly versus the euro as subprime mortgage worries spread to European
banks and encouraged euro selling, but it fell verses the yen on further
unwinding of the carry trade as traders sold their riskier investments to buy
back their previously borrow yen.
Overall, the U.S. dollar index rose along with treasuries as investors
sold nearly all other assets in a flight to quality move and dumped their money
into the supposed safety of what so far remains the world’s reserve currency. For an in depth look at why looking towards
US dollar related assets for safety may be the wrong move, I suggest reading
today’s post at GoldSeek by Jim Willie titled
MBS Monetization and USDollar.

The Dow,
Nasdaq, and S&P fell markedly throughout the day and closed AT their lows
of the session with over 2% losses on renewed credit worries and preliminary retail
sales reports that have so far not come out as good as expected. Early reports also show that this massive
down day came on record high volume as well.

 

 

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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