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Crash, Bam, Boom! - It’s 2008 all Over Again
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(September 25, 2011) The noise you might have heard last week was investors running frantically for the exits: abandoning equities, abandoning commodities, and most noticeably, abandoning hope altogether that world economies would improve anytime soon.
US equities as measured by the S&P 500, lost some 6.5% in five trading days. Platinum found its lowest level since 2009, trading down to $1605 on Friday, a price not seen for this grey metal since this last year. Oil traded down to $80, its lowest price for the year. Copper this past week touched a 13-month low. Silver lost over 20% this past week, trading below the $30 mark for the first time in 13 months.

Until last week, gold had been an outstanding performer since early July, gaining over $400 in price in the three-month period from early July to early September. But last week gold suffered a one-week drop of a magnitude not seen in years, pushing its price to an 8-week low of 1637.50 at Friday’s Comex close.

“In this environment of liquidation across assets, gold tends to be sold to cover losses elsewhere,” Anne-Laure Tremblay, the Financial Times in its 9/24-25 edition quoted this precious metals analyst at BNP.

As during the pre-Lehman panic of 2008, at exactly the time that gold, the world’s most enduring form of crisis panacea, might be expected to surge, prices for the yellow metal instead toppled as panicked investors sold off holdings of commodities and stocks, opting instead for the perceived safety of the dollar. Blame the euro- crisis, signs of a slowdown in China, and a growingly gloomy outlook for most all the world’s economies - at some point last week, panic ruled all markets.

It’s always difficult to assign cause and effect, especially during one of the widespread panics that periodically occur within the complicated matrix of world markets. A simple pop-psychology diagnosis would be that free markets alternate between abnormal complacency, followed by manic fear.

Whatever set the ball rolling downhill last week, as soon as the widespread sell-off across stock and commodity markets began, once- confident investors across all markets were reminded once again exactly what ‘whipsawed’ meant. And of course, whenever the trend seems to be that things are getting cheaper, then cash is king.

Fresh bullion demand picked up strongly as prices fell on Thursday and Friday. Likely, this week will see even more demand for physical precious metals as opportunistic buyers jump to buy at prices that are now so much lower than just a week ago.

Expect a continuance this week of the curse of interesting times.

 

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