From Chris Mullen at GoldSeek.com...
In the Gold Market on Tuesday the metal traded mostly slightly lower in Asia and London and then dipped at the US open before spiking $5 off that low. Spot Gold Prices finally fell back to trade 0.15% lower for the day.
The stock market, by contrast, opened briefly higher as markets had remained calm over night following a fresh injection of liquidity from the European Central Bank, but the Dow soon fell over 175 points as a poor outlook from Wal-Mart raised worries over consumer spending, and investment fund Sentinel announced that it wanted to halt client redemptions.
The Dow then came off its lows in late morning trade along with the Nasdaq and S&P, but all three indices fell back off to new lows by mid-afternoon and closed over 1.5% lower as traders looked further into these apparently worsening problems.
Silver dropped to $12.65 before it spiked to above $12.80, but it also fell back off into the close and ended with a loss of 0.55%. The Euro Price of Gold rose over €493, platinum lost $8 to $1,267, palladium lost $4 to $350, and copper fell over 14 cents to about $3.41.
In the finance sector, Sentinel Management Group Inc. asked the CFTC "to allow it to halt client redemptions until it can conduct them in an orderly fashion." Many tried to downplay this problem as a singular event in a company that oversees only about $1.6 billion dollars in a much larger market, but the fact is that Sentinel deals in asset backed commercial paper. This is not some fund that made a wrong bet on subprime mortgages, but one that deals in high-quality investments and "makes money mainly by betting on overnight interest rates outpacing yields on short-term Treasury bonds."
To make matters worse for Sentinel, the CFTC responded later in the day and said it had no authority to grant Sentinel's request to block client redemptions. "We have no role in whether or not the company does this and whether the client accepts this," a CFTC official said." Clearly credit problems are not going away anytime soon. Also emerging at the end of the day appear to be some significant problems at Thornburg, which is citing "significant disruptions" in the mortgage market as reason to delay its dividend.
Gold and silver equities fell over 2% in the first hour and a half of trade before they rebounded and saw only about 1.5% losses by early afternoon, but they then fell back off into the close along with the major indices and ended with roughly 3% losses.
On the data front, producer price inflation in the US for July was reported at 0.6%, way above forecast at 0.1% and a sharp move contrasted with June's -0.2%. Stripping out food and energy, so-called core PPI was slightly lower than predicted at 0.1% for the month, while the June trade deficit was reported at $58.1 billion, smaller than projected and smaller than May's reading.
Wednesday at 13:30 GMT brings US consumer price inflation for July, expected at 0.1%, with Core CPI expected at 0.2%. Thirty minutes later, Net Foreign Purchases for June will show non-US investors' appetite for US securities, followed by Industrial Production for July and Capacity Utilization.
Back in yesterday's action, crude oil rose as a tropical depression was upgraded to tropical storm Dean in the Atlantic. Brewing storms in the Gulf of Mexico also raised concerns. Indications also point towards OPEC keeping output levels unchanged at their next meeting despite the fact that they increased their overall demand outlook for 2007. OPEC did however mention that subprime problems could lessen demand due to slowing economic growth later in the year should those problems continue and that seemed to cap some gains in the energy sector.
The US Dollar index rose again as rate futures continued to reduce chances for a fed rate cut while PPI came in higher than expected and raised inflationary fears.
Treasuries rose by the close as interest rates moderated while stocks fell. Traders also speculated that recent European Central Bank injections may mean less tightening down the road from the ECB, and that encouraged some US Treasury buying on the assumption that European yields will not rise as previously expected.