Spot gold prices fell solidly under the $1,800 pivot point this morning (the low was touched at the $1,772 mark) and they remained very near the $1,780 level for most of the remainder of the trading day. The hefty decline came in the wake of coordinated action emanating from the ECB and other EU-region central banks.
The move happened to coincide with the third anniversary of the failure of Lehman Brothers and it certainly lent traction to the categorical words that Mr. Geithner uttered yesterday to Jim Cramer: "No more Lehmans." One might safely surmise that the man might have known what was to come to pass today from his Fed friends. What ended up coming to pass was in fact a reprieve of at least three months for Europe, courtesy of the official sector.
It was widely accepted in certain circles that yesterday's manifest angst in the markets had reached near-desperation levels and that with small-scale banks runs popping up in the Old World, the situation had to be addressed once and for all. The "Armageddon" trade was thus sent packing. In one swift and aggressive move, the central banking community let it be known that it is not asleep at the switch and that if push comes to a shove that might shove the global economy and financial system into "Lehman mode" then, the buck (and euro, and other such things) stops right here, right now. Go ahead, bet against that kind of might, if you have money to burn fast.
The concerted intervention was designed to increase access by local institutions to dollar loans. The consortium of central banks that executed the market "sortie" now indicate that they will continue to provide such liquidity through the end of 2011. The old saying "Don't fight the Fed" suddenly took on the flavor of "Don't fight five Feds" today and the results (at least in certain assets such as gold) were obvious; the specs didn't. Fight. They fled.
The next target for bullion as projected by polled traders in New York is near the $1,688.00 area - something that is still $100 away but a possibility that has nevertheless increased significantly as the risk-off trade makes its presence felt in various asset classes. Do note that gold declined on a day when an increase in initial jobless claims filings, a dip in the Empire State's manufacturing activity index, and a rise of 0.4% in August US consumer prices might have otherwise lent more than just a helping hand to bullion values.
In fact, this should have been a day for the market to head higher by possibly the same amount that in fact it ended up losing - all things considered. The only statistics that might have not come in gold's favor was the higher than expected inflation temperature reading. It could imply that the Fed could take its foot off the "QE" pedal either when it meets on the 21st or shortly thereafter. That is not a certainty, but it must be factored in as a possibility.
We note that the yellow metal's slide occurred in concert with the US dollar also losing ground as the apprehension about a European meltdown were dealt a setback for the time being by the aforementioned official sector intervention maneuver. The greenback traded at 76.24 on the trade-weighted index at last check, down 0.61 on the day. Once again, this was an occurrence of tandem trading between gold and the dollar as funds (for a change) sold "everything" (safe-haven flavored) but bought stocks.
The central banks of the US, UK, Japan, and Switzerland joined the ECB in conducting what came to be known as "dollar operations" in the market. The "operations" lent an air of stability to certain markets (equities gained ground) but most of all they calmed some very raw investor nerves that appeared set to snap after days of inaction and uncertainty over Europe. The Dow rose by 160 points on the session as optimism about economic growth not being derailed by a sky-falling event in Europe was on display among investors.
At the end of the (New York trading) day gold settled at its lowest in three weeks in the Comex. Silver suffered a $1.50+ setback to trade as low as the $39.24 mark and the decline has brought the $38.70 "must-hold" point into the discussion once again. Should that number be penetrated, the next target for the white metal remains the $32.20 level.
Platinum and palladium diverged once again today as the former fell $32, in sync with gold (losing basically an equal amount to the yellow metal) and as the latter managed a tiny, $3 gain to the $721.00 mark. The CPM Group Platinum Group Metals Seminar was heavily attended yesterday and you may shortly have an opportunity to replay the event in HD on you own computer. Stay tuned to the Kitco.com website for upcoming links to the presentation. There are numerous valuable insights into these markets to be gleaned by watching the show. Wild forecasts are among the contents.
Well, once again, the world learned today that the most dangerous drug in the world is...testosterone. (Former) rogue trader Nick Leeson was summarily dethroned from the list of "Who Lost Most?" today by the revelation that a UBS rogue trader managed to lose his firm the tidy sum of $2 billion (a capital "B" that is!) by conducting unauthorized trades.
Should the final number of the losses incurred by Kweku Adoboli at the London office of UBS remain in that ugly "neighborhood," this could turn out to be the third largest ever rogue trade loss of all time. Also, consider that the $2 billion that has evaporated basically cancels out the savings that the Swiss bank was going to realize by canning 3,500 employees in a formerly announced cost-cutting plan. To be sure, none of them come close to the $6.7 billion that one Mr. Kerviel (now wearing a swanky striped outfit) lost for his SocGen employers, but...you get the picture. Management is evidently...not managing; at more than one firm; they are decidedly on the hook, in more ways than one.
Well, as we go to print, at least one firm - HSBC - is now off the legal hook as regards allegations of sinister manipulation in the silver market. Investors who had sued the bank along with JP Morgan Chase & Co. (JPM) said that they had signed a "tolling agreement" with HSBC and that thereby they are no longer naming it as a defendant in their case. There has been no official word from HSBC on the legal development. On the other hand, the forum space in various hard money websites is suddenly overflowing with National Enquirer-quality planted stories that frankly lead to uncontrollable laughter.
Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.