Gold News

Gold bounces after-hours, silver ends 9% lower; Yen carry trade unwinds

From Chris Mullen at GoldSeek...

The unwinding of the Yen carry trade made another huge move on Thursday, with traders that previously borrowed cheap Yen to buy higher-yielding assets forced to sell those assets – which seems to be pretty much everything – and buy back their previously borrowed Yen.

The end result was a strengthening Yen and weakening stocks, gold, oil, and other assets. Indiscriminate selling, or forced liquidation, means the best gainers of this year were sold most aggressively today, as many funds were finally forced to raise cash to meet redemptions.

The catalyst for this move was further credit worries, with Countrywide – the largest US mortgage lender – seeing its rumored bankruptcy of Wednesday spread to news that it borrowed the entire $11.5 billion available in a bank credit line to fund its operations.

Poor US economic data and rumors that at least one more hedge fund may collapse certainly didn’t help, but rumors of a possible emergency Fed rate cut seemed to calm the markets and take them well off their lows by the end of trade. One Fed operation that can be confirmed Thursday was the injection of $17 billion in liquidity.

Spot Gold Prices traded roughly $5 lower per ounce in Asia and London before plunging more than $10 lower a little after 10:00 in New York and tried to stabilize in the low $650s for the next two hours of trade.

The Gold Market then dropped a little further after noon, before bouncing roughly 1% into the close to finish with a loss of 3.12%.

Silver dropped 9.02% for the day, while the Dow fell as much as 343 points in early trade before bouncing alongside the Nasdaq and S&P. Amazingly all three indices ended mixed and near unchanged after a huge rally higher in the last half hour of trade. Financial stocks were mostly higher on Wall Street, but the Nikkei had ended 3% lower in Tokyo, South Korean stocks dropped7%, while Europe also dropped 3% and London lost a shocking 4.1% for the day.

At the time of writing, both Spot Gold and silver are higher in after hours access trade, with gold seeing about 0.66% gains and silver finding 3.25% gains from today’s US closes.

The Euro Price of Gold fell to about €483, platinum lost $34 to $1,227, palladium lost $15 to $331, and copper lost over 22 cents to about $3.18.

Gold and silver equities fell roughly 9% in the first hour of trade and then rebounded to see about 5% losses as gold and silver bounced from their initial drop. The XAU, HUI, and GDM refused to make significant new lows and held about 8% lower before they rebounded again in afternoon trade and ended with around 5% losses.

In the economy, US Housing Starts fell to the lowest in a decade as the Philadelphia Fed business activity index gave its weakest reading since December 2006. Friday at 10:00 EST brings the preliminary reading for August Michigan Sentiment expected at 88.5.

Oil fell Thursday on the global economic slowdown worries despite uncertainty over Hurricane Dean, now moving into the Caribbean. Tropical Storm Erin was downgraded back down to a depression as it hit landfall and weakened without reports of major damage.

The US Dollar index fell despite marked weakness in the Euro as the Yen surged higher on carry trade unwinding. Treasuries rose on safe haven buying as stocks fell for most of trade. Two-year notes rose for a fourth day following the biggest gain in three-month bills since 1989, pushing the gap between two- and 10-year yields to the widest since May 2005.

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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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