Markets Doom & Gloom of Another Variety

After suffering a roughly 4% loss last week, gold prices headed even lower overnight and this morning as further erosion in crude oil and the euro and further advances in the US dollar made life more difficult for the few remaining bulls in the market. Bullish sentiment had already dipped to well under the ten percent mark late last week, giving rise to hopes that a counter-trend rally might finally emerge today after six-plus brutalizing trading weeks and a ten-week-old chart downtrend but the flight to (US) cash has prevented that event from materializing as the new trading week got underway overseas during the night. Spot gold dealings witnessed a low on gold at $1,554 per ounce while silver fell as low as $28.20 the ounce. 

In the market background, the US dollar reached well above the 80.50 mark on the trade-weighted index while the euro got clobbered once again and dipped to $1.283 against it. Crude oil provided further comfort to OPEC spokesmen who had expressed a desire to see black gold trading in and around the century mark per barrel with a near-$2 dip to close to the $94 level this morning. On a “normal” morning, the news from China over the weekend would have brightened trading spirits and would have lifted the precious metals and the commodities’ complex overall. 

China’s central bank announced late Saturday that it would loosen monetary policy in a clear effort to stimulate the economy after the release on Thursday and Friday of a batch of economic indicators for April that were considerably weaker than most economists had expected. Reaction? Not visible. Not today. Welcome to the “new” normal…where the perception that China is experiencing a worrisome deceleration supersedes the possible benefits of an accommodative stance by the government. 

The Dow lost more than 115 points in the first 15 minutes of action this morning as the euro-centric gloom once again dominated investor sentiment. Commodities have now wiped out their year-to-date gains and are in the midst of their longest losing streak since 2008. Commodity exchange-traded products (ETPs) witnessed $1 billion worth of outflows in April, led by withdrawals from precious metals and energy, said Societe Generale SA analysts to Bloomberg News. As a result of the above, we now find that players in this niche have slashed their bullish bets on “stuff” by the most (19%) since last November. 

Gold and precious metals funds shed $467 million in the reporting period ending on May 9th. According to Bloomberg News, “bullish gold bets plunged 20 percent to 92,498 contracts, the lowest since December 2008, CFTC data show. Wagers on a silver rally tumbled 32 percent to 7,159, the biggest decline since late December. Gold prices dropped 3.7 percent last week; the most in two months, as the dollar rose, curbing demand for the precious metal as an alternative investment. Silver declined 5.1 percent to $28.89 an ounce.” 

This, too, will be a statistics-laden week in the US and the markets will have plenty of fodder for wild and woolly action, depending on the tilt to be gleaned from the numbers as regards the US economy. We will be digesting the key April retail sales figures and the CPI temperature’s reading (tomorrow) along with the Empire State index, and inventories. On Wednesday we will read about housing starts, industrial production, and capacity utilization in the US. Finally, on Thursday, the markets will learn about the weekly jobless claims filings levels, the US’ LEI and they will hear from the Philly Fed. Meanwhile, commodity bulls continue to desperately hear that which they must hear in order to survive, from the actual Fed. Suddenly, that June FOMC meeting seems so darn far away…no? 

New York-based spot precious metals dealings opened very weak amid a plethora of bearish news and statistical revelations related to the markets. Gold started the week off at $1,555 - $1,562 per ounce (now down $23) with technical indicators still pointing toward an important support shelf below, at $1,527 the ounce. Silver lost more than half a dollar and was quoted at $28.35 per ounce. Our friends over at Standard Bank (SA) in their weekly futures market and ETF positioning report note a couple of things about the current status quo in gold and in silver. Not good things, mind you. Read on: 

As regards the speculative paradigm in gold, they see that “Net speculative length appears decidedly weak compared to historical norms, signaling a continued lack of confidence. What is more disconcerting is that while investors have over the past few weeks appeared cautious of running too short on gold, this fear seems to have evaporated.” As for silver, the analytical team finds that “The abrupt increase in shorts is a cause for concern, as a bearish view on silver appears to be gaining traction. The paradoxical increase in longs does not provide much comfort, falling far short of the decline in the previous week. 

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