RE: My A$$ has been really opened wide last 2 daysDJ PRECIOUS METALS: Gold Suffers Massive Loss On Liquidation
Wednesday, March 19, 2008; Posted: 02:58 PM
Gold futures suffered their biggest one-day dollar decline in 28 years and other precious metals also tumbled sharply on long liquidation Wednesday in the aftermath of a smaller-than-expected rate cut from the Federal Open Market Committee that came after metals closed on Tuesday, traders and analysts said.
The selling was part of overall weakness in commodities that included a loss of more than $5 a barrel in Nymex April crude oil as of gold's close. Technical selling was triggered in the metals.
Most active April gold tumbled $59 to $945.30 an ounce on the Comex division of the New York Mercantile Exchange. Shortly after Comex pit trade closed, the April contract at the Chicago Board of Trade was down $59.60 to $945.10.
Lightly traded but nearby Comex March gold fell $58.50 to $944.70 an ounce. A scan of Nymex records shows nearby gold has seldom ever lost more than $30 a day, and Wednesday was the largest one-day fall since a $143.50 collapse on Jan. 22, 1980, the month when gold was especially volatile when hitting record highs that stood until early this year.
Meanwhile, May silver plunged $1.515 to $18.445. As it was closing, CBOT May silver was down $1.508 to $18.47. Comex April gold settled Tuesday at $1,004.30, less than an hour before the FOMC cut the federal-funds rate by 75 basis points rather than the 100 the financial markets were expecting. Furthermore, there were two dissenting votes.
The contract fell as far as $976.80 in electronic screen trading late Tuesday, then tumbled further Wednesday to a pit-session low of $940. At that level, it was down $93.90, or 9.1% from the contract high of $1,033.90 hit two days ago.
The dollar's rally after the rate cut was the catalyst for much of the selling in gold, said Daniel Pavilonis, senior market strategist with Lind-Waldock.
"So we're seeing liquidation of these metals," he said. "We're seeing such a pullback that people are just jumping out of the market right now and holding off and waiting for it to find a bottom. It's also blown through stops."
George Gero, vice president with RBC Capital Markets Global Futures, cited hedge-fund liquidation and reported that sell stops were triggered from those who had bought gold near the recent highs. One of the factors fueling gold's recent rally was expectations that lower rates would mean further inflation. Thus, one of the impacts of the lower-than-anticipated rate cut is "less money on the street" and thus potentially not as much inflation as would have occurred otherwise, Pavilonis said.
A Comex floor trader also commented that gold was drug down by the weaker crude oil.
The liquidation in gold has come from funds and other speculators. In many cases, Pavilonis said, those exiting actually remain bullish for the longer term but are looking for a more attractive price at which to re-enter.
"We're waiting for a bottom to come in and we're buying it again," Pavilonis said. However, he said, it's possible the market won't find a bottom until next week.
He put support for April gold at $930, $900 and $890.
Bill O'Neill, one of the principals with LOGIC Advisors, commented that the gold losses were part of an overall decline in commodities.
"We're seeing hedge fund selling across the board in commodities," he said. "Look at the oil market."
Shortly before gold closed, Nymex April crude oil was $5.29 a barrel lower at $104.13.
As did others, O'Neill characterized the selling pressure as liquidation rather than aggressive shorts.
O'Neill and Gero also cited weak gold demand from India as a factor adding to the pressure on prices.
India imported just 10 metric tons of gold in February, down from 59 metric tons in the same month a year ago, due to the run-up in prices, the Bombay Bullion Association reported this week.
"It shows there is some price resistance," O'Neill said. "It's already showing up in the jewelry arena."
Meanwhile, April platinum lost $81 to $1,887 an ounce, while June palladium declined $25.20 to $464.45 an ounce.
These metals largely followed the sharp declines in gold and silver, said one desk trader.
"There is a little profit-taking after the recovery in the stock market yesterday," he said. "There were a lot of longs out there who had invested in commodities and precious metals as a hedge against the upheavals in the equity markets."