PLUMMETING PRECIOUS METALS
By Surly Trader
Gold and Silver have taken it on the chin over the last few days. Much of this has to do with a recent spike in the dollar versus currencies around the world. It seems that all risky assets were sold on Thursday and Friday and plowed into treasury bonds.
What is interesting is that silver moved much quicker than gold and we have seen a reversion to the mean with respect to all precious metals priced in gold. Platinum and Palladium look the most attractive after this last correction:
Platinum and Palladium look attractive versus gold
20 Comments
Its was margin hikes
http://www.zerohedge.com/news/case-closed-cme-hikes-gold-silver-copper-margins
Actually, it was China fears and the Fed. The move was broad across the entire commodity complex. The people trying to blame margin hikes are making excuses for what is essentially a failing hyperinflation call that they’ve been wrong about for years on end….
Who has been wrong for years?
The hyperinflationists…..All of them.
When if comes to the Silver and Black…don’t blame margin, or the fed.
ITS AL DAVIS…he’s more sinister than Bernankes beard.
XDTJX-… I agree…the catalyst to pop a bubble or correction in a long term bull can be anything. Near the top we match the event of the hour. When u get parabolically extended u could almost blame HBOs ending of Entourage as the reason why. I know for a fact if they kept that show metals would still go up.
Bulls r strong animals and don’t stop to crap until they’ve gone to far. But when they do stop it’s generally the distance they’ve travelled that makes them tired….not the sudden wind that causers the to pause, stop or die.
The only bull I ever predicted was the one who wore 23#. When he left….it was over.
Actually you’re both right, its the margin calls AND the Fed.
The ICE has reportedly raised margin requirements on its commodity indexes. If you see those massive gaps on the CRB Index, you know why.
http://twitter.com/#!/JohnKicklighter
So CME happens to hike margins at the same time its archrival ICE does? I sense a disturbance in the force… emitting from this building.
http://www.ibiblio.org/hyperwar/ATO/USGM/FRS.html
Not so sure I buy that. The margin hike on copper, for instance, came down on Friday from the CME and while it may have impacted the markets (it clearly did) the price declines were already well in place before that. But you can see in the trading that the trigger points for the selling were the FOMC Meeting and the China PMI. From there it was all waterfall once the floor session opened after the China PMI. No one wants to get in front of the two big trends driving commodities prices around – Fed speculation and “money printing” and China (actually “money printing”). The CME just piled on the volatility train that was already in motion from the China and FOMC announcements….
My assertion is that the margin requirement hikes themselves were due to Fed jawboning of CME and ICE (that is, on a voluntary basis. If the Fed had muscled it through, it would have shown up on the record).
I’m indifferent on the question whether the metal markets are responding to the Fed acting through its FOMC channel or through its margin regulation channel. Oddly enough, since both the Fed and the exchanges leak market-moving info, sometimes the best evidence of cause and effect is when the effect occurs just before the (public) cause.
http://www.cjr.org/the_audit/reuters_investigates_the_feds.php?page=all&print=true
http://www.thedisciplinedinvestor.com/blog/2011/09/20/gary-gensler-chairman-of-the-cftc-on-was-information-leaked-on-cme-silver-margin-hikes/
It’s never the margin hikes. They are a result of the down movement in assets.
And it’s also not the Fed or china or the Euro or the dollar. It’s the end of a speculative bubble. It’s simly a very liquid asset. If people need money they just sell everthing. There is no secret behind that or anybody to blame. Everyone who is playing the silver gamble is responsible.
People just need someone to blame for their whishes not coming true.
Al the reasons why silver should go sky high is just wishful thinking.It’s not real. We are in a dept bubble and simply said there is not enough money, doesn’t matter how much Benny or any body else is creating.
The biggest speculative bubble ever is just going to burst and that’s not the commoditiy bubble ( that too )
cheers
Your post does not make any sense to me.
Let’s try to agree that it was the margin hikes that was the catalyst for the turn but margin hikes are not what drove commodities to ridiculously overvalued levels…what drove it to ridiculous levels was to much money chasing to few productive assets.
Cullen,
You’ve mentioned in recent weeks that you were still bullish on gold and felt that it had room left to run. Have these recent developments changed your views on gold? Has the macro picture significantly changed to put an end to gold’s bull run?
Thanks for your thoughts on the subject.
No, I mentioned a few weeks ago that gold needed a healthy correction. Bull still intact in my opinion. Silver still blowing off from the bubble I called a few months back….I’ll be posting a piece on this tonight….
Bah everyone has a useless opinion.
Here is another one, if you don’t reject that gold correlates to real yields as the data shows. That is, FOMC minutes and China PMI created “deflationary” expectations in line with the potential upcoming recession. And deflation also implies real yields are increasing (nominal – inflation rate). Therefore cash and bonds become more attractive holdings (their NPV increases). And pretty much everything else deflates relative to the reserve currency (if we were on a gold standard, everything would deflate to gold which gold bugs really have a hard time accepting).
Overbought for so long is overbought……precious metals were due for a trough even if its short term…should not be to big of a surprise to everyone.
While all the conspiracy folks are blaming the powers that be are taking it down to suck their money away, it looks to me to be everyone is selling to make a profit. That and the margin hikes. I sold mine for a nice profit. The PM’s could also be sold to cover losses in other areas.
Watching it close though but staying out for now until the big European QE to infinity. Not sure it will happen but if it does time to buy back in. I am an itty bitty guy that trades only physical. I still have the gold I bought at 300 an ounce and not letting go of it anytime soon.
It’s quite obvious we are now in deflation squeeze. How long will it go and how severe would it be, I do not know.
Yet, to call hyperinflation thesis wrong and over would be premature. To call it over, we need to live through resolution of all current economic imbalances and credit contraction. I still believe Japan should be the first canary in the mine to go through this, but may be EU will get there first after all. How the end game will play, I do not know, but I think “orderly debt writedown” is the least possible outcome.
To call the end of gold bubble is groundless at this point. Gold had more significant corrections in 2008. And they preceded SPX crash. In a year after that gold was at new highs. Again, I think gold bubble will end when we get clear view on major economic issues resolution.
WE mentioned Gold consilidating and to no longer count us as Gold Bulls. We issued a warning on 8/10. We did the same on Silver a month prior here.
Gold has gotten attractive and we will be looking to add to our 7% allocation soon.
WE did make one buy today SPY 25% to close out the quarter. Down to 22% cash.
This is a short term trade. (if you commented this is a gamble and I have no clue what will happen….I would have to agree with you)
I do post my trades when I take action. I don’t know any other way to discuss with you all my views if I don’t. Given my personality. I do enjoy sharing and talking with you all about this stuff and have a proclivity towards banter so I kind of have to. As opposed to someone who doesn’t need the attention or isn’t so self absorbed as I am.
Why ask why? Fundamental reasons FOLLOW price. Metals are a gift here unless your dumb enough to believe in the Phd standard. I’ll put something that has held its value for 4000 years against the Ben Bernank any day. This brief detour into fiat money will pass like a bad fart.
I’m not a hyper inflationist, but I, like any intelligent asset allocator, believe there is a place for gold in every portfolio.
Gold and silver had a good run up and were due for a (severe) correction. Too many folks were long the precious metals. The silver-gold ratio signaled that the financial stress “”has increased”". Copper was the victem of the world economy slowing down.
More over, when stockmarkets are going down the drain then both silver and gold simply will be hammered as well.
And a rising USD (in its capacity of the senior currency) is toxic for every commodity, including gold and silver.