"Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety." -Benjamin Franklin
Last week. It's over. It's "last week". But the questions linger... How can the FIFTH LARGEST investment bank in the country go belly up, and Gold tank? How can the Fed cut 75 basis points from the Fed Funds rate, and Gold tank? How can retail sales drop, producer prices rise, jobless claims increase, and new home starts fall, and Gold tank?
Damn good questions, eh? We've not heard many answers as to why Gold tanked, but plenty of excuses. Excuse #1, the Fed ONLY cut 3/4 instead of one point. LOL, poorest excuse of them all. They cut AGAIN, damn it! Excuse #2, the Fed saved the financial system by financing the assimilation of Bear Stearns by JP Morgan/Chase. LOOOOOOOOOOL, who's next? Excuse #3, quarter end profit taking in the commodities sector. Um, this was more than "profit taking". And for the last time please, Gold is NOT a commodity. Gold is MONEY! Excuse #4, the Dollar rallied because the Fed ONLY cut 3/4 of a point and not ONE FULL POINT. LOOOOOOOOOL, the second poorest excuse. The only currency with lower interest rates in the ENTIRE world now is Japan. Excuse #5, margin calls forced selling. Hmm, we may have something here.
MF Global cash call to cover CFDs sparks fear
Stock markets faced new selling pressure today as leading broker MF Global demanded more cash from clients to cover derivative positions.
Stock markets faced new selling pressure today as leading broker MF Global demanded more cash from clients to cover derivative positions.
In some cases the margins will rise from 25% to 90%, requiring a big injection of funds that could lead to a massive sell-off of shares as investors scramble to raise the money to cover their positions.
MF Global has given customers until this morning to find the cash or close their positions. That has led to fears there will be forced selling, with millions of shares being dumped on a volatile market.
Hedge funds ... may be cutting leverage
"Leverage is being closely watched," said Josh Galper, managing principal of Vodia Group, which advises hedge funds on borrowing strategies.
Leveraged is important for some hedge funds. Using borrowed money can increase potential profits from trades, but it can also lead to bigger losses if those positions don't work out.
A hedge fund investor said one of the managers they invest with recently moved from Bear and had to adjust because the new prime broker had a more conservative lending policy.
Indeed, the investor, speaking on condition of anonymity, said all prime brokers have been re-assessing their relationships with hedge funds as the credit crunch deepens.
This process has already roiled credit markets as some hedge funds have had to sell assets to meet margin calls, or demands for more cash or collateral to support leveraged positions.
Hedge fund de-leveraging may now be affecting commodities markets too.
The price of commodities including energy, metals and grains slumped for a second day on Thursday amid speculation that some hedge funds are selling leveraged positions to either meet margin calls or lock in profits and shift to other assets.
The Great Unwind has begun, Citigroup warns
"We are now confronted by a broad bloodbath in the credit markets," Citigroup said. " The most leveraged paper is falling in value because it is leveraged, and now the least leveraged paper is also falling in value because it is owned by leveraged investors."
So, taking into consideration the technicals of most commodities, and the Precious Metals, were coincidentally at or near all-time highs as we entered last week...perhaps we could surmise that the blowup of Bear Stearns has sparked a Global Cash Call that has forced leveraged speculators across the globe to reluctantly dump their ONLY profitable positions because they couldn't find more cash to maintain them. And strangely, it is then the very reason that so many have bought commodities, that they are now forced to sell them...the Credit Crunch, falling interest rates, and rising inflation. How perverse is that?
And the beneficiary of this "dumping" of speculative commodity and Precious Metals positions...cash. The Dollar catches a "temporary" bid as speculators are forced into cash and short term treasuries. On Thursday, investors bid up prices on the one-month Treasury bill, sending its yield, which moves inversely to price, down 85 basis points, to 0.2%. LOL, nice return on your money.
Let's face it...commodities and precious Metals should be soaring after everything we witnessed last week in support of the fundamentals that have been driving them higher. This "fire sale" of everything tangible last week has created a much sought after "buying opportunity" for "global" investors to take advantage of the "speculators" demise. Remember, it is investors that will drive the precious metals higher in this leg of the Bull Market.
Asia jewellers on buying spree as price sinks
Singapore, March 20: Jewellers across Asia rushed to buy gold on Thursday after prices tumbled more than $100 an ounce since spiking to a record above $1,000 an ounce this week, pushing up premiums in key bullion trading centres.
Rush back to gold by Eastern jewellery markets...
Reports from Asia in particular suggest that jewellery sector buyers and investors have been climbing back into the market for the yellow metal in a big way in the past few days after virtually boycotting it in the run up to the recent higher price levels. The jewellery market tends to be pretty shrewd in its assessment of price levels, and this activity suggests an underpinning of the gold price at or around current levels and further suggests, perhaps, that the upward momentum will come back into effect before too long.
Investors across the globe see the writing on the wall. And the Precious metals are on sale. The Asians are all about value, and they love Gold. Their "savings accounts" are their Gold "investments". Think of this weeks plunge in Gold and Commodity prices as the catalyst behind the coming tsunami of investment into this sector globally. The speculators have done their job by making investors around the world aware of the virtues of owning these tangible assets. They will now be pushed aside as investors trade in their fiat currencies for REAL money, and REAL assets. The age of "paper assets" is going up in smoke.
The weak hands club
ANNANDALE, Va. (MarketWatch) -- If gold bullion's plunge over the last couple of days is enough to scare you into selling, then join the club.
The club of weak hands, that is.
The club of weak hands, that is.
The very purpose of sharp corrections during major bull markets is to transfer ownership from weak to strong hands, thereby preparing for the next leg up.
Despite the mildly tough language in its statement, it should be clear to all that the Fed sees inflation as the only politically acceptable “solution” to the problems it created. The conclusion that a 75 point cut shows concern about inflation is half right. The Fed is concerned, but only to the extent that the markets stay focused on bogus CPI numbers and fail to notice severe price increases throughout the economy. The fact is that inflation will be with us for some time, and the knee jerk drop in gold is yet another excellent buying opportunity.
-Peter Schiff, Euro Pacific Capital, Inc.
-Peter Schiff, Euro Pacific Capital, Inc.
The gold price will not stop at the $1000 milestone. The silver price will not stop at the $20 milestone, and will vastly outperform gold. The crude oil price might go below the $100 milestone briefly, but will return and shoot past the century mark. No no no!!! All are heading much higher, because the banking problem is not to be soon fixed, the bond problem is not to be soon fixed, the economy is not to be soon fixed, household distress is not to be soon fixed. Maybe none can be fixed, even as money thrown at the problem accelerates parabolically. The limited power of USFed solutions, and limited arsenal of devices to treat the problem, will ensure that monetary inflation will be the main tool. Still, adding liquidity in rescues, repairs, and bailouts is not seen as the cause of the problem. It still is seen as the immediate solution. SUCH IS THE HERESY THAT HAS DESTROYED THE US BANKING SYSTEM.
-Jim Willie CB, GoldenJackass.com
Back again to my February 25, 2008 post, Looking Past The Moon , and we can see that last weeks Gold dump, though shocking in magnitude, should not have been completely unexpected.
It would not be unreasonable to expect Gold to perform in March much the same as it did in January. If this scenario were to come to pass, we would expect Gold to soon break above 950 and move swiftly towards the BIG $1000 station. Gold bugs could be celebrating St Patrick's day wearing Gold instead of Green. With Gold +/- 15 of 1000 by mid March we could expect a reaction back towards the breakout at 936. This reaction would be swift and likely last less than 10 trading days.
We're five days into this correction. We should know who the fools are by April 1. There is nothing pretty about this. As a matter of fact it sucks, but it comes with the territory. Fundamentally, the reasons for owning Gold and Silver are probably sounder today than they were one week ago. Corrections in a Bull Market are are to be expected, and this one, like those in the past, should prove to be constructive as Gold sets its sights on Infinity.
Seasonality. For the past six years Gold has bottomed in mid-march and rallied into May. For more on this phenomenon please take the time to read HUI Bull Seasonals 2 by Adam Hamilton, Zeal Intelligence LLC. You will be glad you did. IMO, the man's work is brilliant. You will find this excellent essay on the seasonality of Gold here: http://news.goldseek.com/Zealllc/1206256080.php
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