Golden Showers

We have an old saying on Wall Street that when they raid the whorehouse, even the piano player gets popped.

In the case of precious metals this week, they weren’t just innocently biding their time this summer while everything melted down, they had the audacity – the flamboyance – to be climbing to new highs!  Well flamboyant piano players are especially apt to get popped, picture Elton John tinkling away in an Old West saloon during a gun fight.

Anyway, by week’s end it became apparent that the “dafe haven” trade in gold (and by extension silver) was cooked.  Selling pressure from margin calls led to players dumping the only asset they actually had a gain in, regardless of how the man on TV told you that gold was a replacement for dollars.

Here’s the Wall Street Journal:

In the past week, the Dow Jones Industrial Average plunged 6.4%, its worst week since October 2008. Currencies, too, have had a wild ride. The dollar this month has soared against its rivals. The euro has tumbled 6% in September, while emerging currencies like Brazil’s real have been punished.

Gold futures dropped 5.8% Friday, the biggest one-day loss in five years, as investors rushed to cash out of some of their most profitable investments in the hopes of making up for losses elsewhere. The decline capped gold’s worst week since 1983. Silver was even harder hit, plunging 18% for its largest single-day decline since 1987.

So has gold gotten interesting yet?  The longer-term uptrend is still intact but we’ve just gotten a glimpse of how jumpy the holders are and how susceptible the precious metals are to market pressure now that they’ve been ETFd to death.

This is a new wrinkle for many holders to consider.

And silver – don’t even get me started – the dot com bubble of the materials trade.

Source:

Market Rout Claims New Victim (WSJ)

Tags: $GLD $SLV $GDX