Italy, Spain, Belgium and France all banned short-selling of specific equities as of this morning as they tried to address the "benefits that can be achieved from spreading false rumors" [like, say, that defaults or similar are around the corner] and similar speculative activities that have been routing the markets in recent weeks. The French Finance Minister, Monsieur Baroin, declared that his country is "committed to ensuring financial stability and fighting against all forms of speculation." We can think of a market sector or two (wink, wink, nudge, nudge) where such a frenzy has been amply evident in recent weeks. A similar ban was in force on certain financial stocks in the fall of 2008 in the US as well.
It turns out (no surprise lately) that one day makes a difference of considerable magnitude. Behold the beleaguered Dow add 423 (!) points. Witness gold give back roughly $90 (!) at one point from the overnight high it had etched into the record books in the wee hours on Thursday. Watch silver lose some more ground (what else was new?). Note the 5% cratering of the Swiss franc (which has gained 31% against the euro in 12 months) following posturing by the country's central bank that a peg to the euro might be in the making.
This morning's markets opened largely lower in precious metals (platinum being the exception thus far). Gold continued to be sold off and it lost $10.50 per ounce (to $1,757.00) out of the starting gate as risk appetite made a tentative reappearance among market participants. The decline in the yellow metal took place despite a small (0.12) dip in the greenback on the trade-weighted index (to 74.54) but then again in the past several sessions there really has been a notably poor inverse correlation between bullion and the dollar.
Silver lost 11 cents on the open, and it was being quoted at $38.53 per ounce in New York on the bid-side. Not breaching the critical $37 level remains the white metal's priority #1 while bullish conditions are still considered as becoming valid only above the $42.29 mark. Platinum gained $8 to open at $1,795.00 per ounce while palladium was higher by $4 at $745.00 the ounce. The latter is still hovering only some $50 above its six-month nadir that was recorded near $695 the ounce.
Recent price developments quite conceivably represent a rare opportunity to buy platinum cheaper than it has historically been in relation to gold. Over the past 20 years, the spot price of gold has rarely overtaken platinum's. The lowest the ratio between the two metals has fallen during that period was 0.93:1 in October 1992. Astute buyers have been returning to the platinum and palladium markets with more enthusiasm than they have shown for some time now. Potentially good news for the noble metals comes from the current situation in the car market, by the way.
Bloomberg reports that "there is an industry-wide shortage of used cars in the US, the product of manufacturing cuts amid slumping sales the last three years. That means some people have effectively been priced out of the used-car market and into brand-new models. As many as 500,000 new vehicles by mid-2012 may have been sold to people who would have [otherwise] bought used [ones]." Continued demand for fresh production vehicles implies more platinum/palladium/rhodium demand than previously estimated.
So, what really changed on Thursday? Well, if you are going to buy the excuse that the surprise decline of 7,000 claims for unemployment benefits did the trick, there are still some offered for sale ads for some very moist patches of Florida land available to consider... Jobs figures aside, Dr. Nouriel "Doom" Roubini places the odds of a global contraction at higher than 50/50 at the present time and warns that the next 90 days will be decisive in the matter. Some parts of the world (see Greece, which shrank 6.9%, economically speaking, in Q2) are already mired in contraction while others (see France, which recorded zero growth in the same period) are apparently skirting such a paradigm.
Sure, there was a bit of a "less worser" feeling generated by the joblessness statistics manifest in Thursday's market actions, but that hardly accounted for a situation where the Dow was able to effectively reverse Wednesday's staggering losses. This has been the single craziest week in the equity market since that fateful summer of 2008 that everyone is still trying to erase from their memory banks.
But as bad as the $3 trillion in losses in US equity values has been in terms of headline-making material, consider the fact that amid all the bloodletting, corporate insiders have been quietly buying their own stock at the highest clip since the Dow reached its 12-year nadir in early 2009. Food for thought, that. These are the very people who have the inside knowledge of what their own shares ought to be worth, or will be worth down the road.
As well, gold's steepest drop in nearly two months can also partially be explained by its previously heavily overbought conditions (its RSI near 84, 95% bullishness levels) and the emergence of good old-fashioned profit-taking. Additional justification may also be found in the CME raising margin requirements for playing in the golden casino. You may probably recall what that brought about in silver on May Day and thereafter.
But, at the end of the day, there are always those pesky charts and related metrics to contend with. This week, some market watchers placed certain labels on gold's recently gone-parabolic chart trace.Others were a bit more daring and reached for the alarm bell well before yesterday's decline. And that was before the trading desk chatter in NYC started alluding to at least one large GLD owner having to potentially liquidate some bullion holdings in order to meet margin calls incurred elsewhere in the markets....
By last night however, even some long-time observers dared to come forth and ring the aforementioned bell, and even place precise mathematical parameters/projections in front of their audiences. There might be $100 left in gold's rally? Is anyone ready/willing/able to accept that proposition? Will they continue to take Dennis Gartman's pronouncements as contrarian signals despite his correct (if a tad early) call last Friday?
Will they now also ignore Jim Rogers' advice (who, by-the-way, told one source overnight that this gold market has him worried) to consider dirt (read: farmland) instead of more golden nuggets? Or will they keep chanting the JP Morgan gold price target despite its having been offered by the ultimate market "offender" whose intentions are supposedly nefarious?
Hopefully, amid all the commercially-motivated noise, investors might take a look at some truly cogent, independent market analysis and ascertain that this latest set of events is not necessarily "the last stampede" by retail investors but perhaps something else altogether: a phenomenon brought to you courtesy of certain ... other types of players (hint: four-letter word starting with "f" and the prefix "hedge"). Teaser factoid from the BNN video: retail metals investors may be selling more gold and silver coins than they are buying at this juncture; coin premiums indicate as much. Of course, you may not hear that little detail in too many of the market stories being produced these days.
Until Monday's stories develop, we wish you a pleasant weekend.
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.