Gold Spot gold was trading at $663.80/664.30an ounce as of 1215 GMT.
Gold's decline for a third day may be due to the dollar's recent strength. The dollar has further strenghthened against the euro (1.3478 at 1200 GMT) and against sterling (1.9894 at 1200 GMT) . However, the long term fundamentals will likely reassert themselves before the end of August with the coming of the traditionally strong period for gold in the Autumn when physical demand is at it's strongest.
Yesterday's far higher than expected PPI figure of 0.6%, largely due to a big jump in energy costs, pushed inflation at the wholesale level up sharply in July. This is bullish for gold due to its inflation hedge qualities but resulted in lower gold prices for the day.
Questions are being asked about mysterious and counterintuitive movements of markets in recent days with sharp rallies in the Dow Jones that come out of nowhere and continual price capping of the gold market and sell offs of gold on news that is bullish.
The respected Gartman Letter wrote ‘Should gold break upward through EUR 500 at the same time that the Yen/EUR cross is breaking down below 160, it shall mean that global liquidity concerns are again on the rise, and it shall bode ill for equities even as it bodes well for gold. There is strong resistance, however at EUR 497-EUR500, and we've no doubt but that the central banks of Europe…shall be aggressive sellers of gold, hoping to defend against a break to the upside. Further, there is strong resistance at the US$672-675 level, and we expect that level also to be defended by central bank selling.’
Money Market and Cash Funds Being Affected Further evidence that this is far more serious than a mere 'subprime crisis' is seen in that now money market funds are beggining to be affected by the credit crunch. The Wall Street Journal reported that lurking within some of these funds are exactly the same types of mortgage-backed securities that have the stock and bond markets spooked.
There is unconfirmed talk on the street that many money market funds including BlackRock, Schwab, and Fidelity may have attempted to enhance their investment returns by purchasing low-quality debt instruments and now face withdrawal problems because they cannot value these assets in the current environment.
Thomson IFR Markets says, "this is a scary development. If this problem spreads to Vanguard, Fidelity, and other large money market funds, funds with trillions of dollars, we shudder to think that we might see an old fashioned ‘run on the bank’."
The so called safest investments such as money market and cash funds are now beginning to be affected by the global credit crunch and this will lead to safe haven buying of gold.
Silver Spot silver is trading down to $12.50/12.52 an ounce (1215 GMT).
PGMs Platinum was trading at $1262/1267(1215 GMT). Spot palladium was trading at $346/350 an ounce (1215 GMT).
FX and Gold Yesterday’s busy data schedule, which included US PPI and trade data, was overshadowed by ongoing credit and liquidity issues. The latest round of losses in equities came amid warnings from UBS that market turmoil will hit investments. Selling in US was compounded by reports from Wal-Mart that profits will fall this year as consumers rein in spending.
Home Depot added to the slide when it said weakness in the housing market caused quarterly profit to slide. Stories overnight included the news that a number of Canadian issuers of asset back commercial paper required help.
Oil U.S. oil prices rose slightly to above $72 a barrel. Traders balanced growing unease over a global credit crunch with fears that a gathering storm in the Gulf of Mexico could disrupt output and appears to be heading directly at Houston. At 1200GMT, London's benchmark Brent crude contracts for September delivery were up to 70.66 usd a barrel, while New York crude contracts for September delivery rose to 72.47 usd per barrel.
Stocks Global equity markets sold off aggressively as investors continued to flee rising credit risk. In Asia, Japan's Nikkei dropped 2.2% and Hong Kong's Hang Seng slid 3%. In Europe, the U.K. FTSE was down 1.5%, while Germany's Dax and France's CAC were each off 1.3%.
The slide came a day after another sharp drop in the Dow Jones Industrial Average was fed by worries of looming losses in the financial sector. Big brokerage firms such as Lehman Brothers and Goldman tumbled Tuesday, a day after Goldman unveiled a plan to engineer a $3 billion bailout of a fund that made bad bets on stocks using computer models. Stocks' fall was also fed by weak results at giant retailer Wal-Mart.
Also hit hard Tuesday was Thornburg Mortgage which specializes in the so-called jumbo mortgages used by homebuyers who need to borrow more than the government-sponsored agency limit of $417,000.
This is more clear evidence that this is no longer merely a subprime issue rather a US and global mortgage and property crisis which is leading to global financial contagion.
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