Thursday, April 25, 2013

Stocks Slump Late as Gold and Silver Rebound with Gusto

Stocks erased early gains in a somewhat odd selloff late in the session, but their thunder was surely stolen by action in the precious metals markets.

Gold, since the paper price smash-down of April 12 and 15, has regained half of its losses incurred during that spectacular waterfall event. Silver, also negatively affected during the same time period, had its best day in fifteen months, with outsize gains of nearly six percent.

Whatever the intent of the paper gold manipulators, it seems to have backfired. Instead of declaring the gold rally "over," coin and bullion shops from Hong Kong to Mumbai to Shanghai to New York have experienced the briskest business in many years, as individuals rushed to secure physical supplies of the precious metals during a time of increasingly short supply.

While the physical price of gold was roughly $40-60 higher - though some reports say bulk buyers were paying close to $2000 per ounce - silver never really skipped a beat from the $29-30 range, as that was the market price on exchanges such as eBay and also via high premiums from online and brick-and-mortar dealers who reported being out of stock for many popular items such as silver eagles and bars.

The frenzied buying of the past ten days finally has drifted back to the paper gold markets on the Comex and Globex, to a point at which supply shortages are easing a little and the price has risen to more respectable levels. What remains to be seen is how customers who thought they had claims on physical gold through the LMBE and Comex but are instead getting warehouse receipts and being forced to settle in cash will retaliate.

If the paper and physical prices continue to diverge, it spells trouble for the paper exchanges, who do not have sufficient quantity of metal to meet those who wish to stand for delivery.

What is significant is how buyers seemed to pop out of the proverbial woodwork to buy quantities of gold and silver in physical form, as opposed to the speculators who trade nothing but what seems to be worthless paper and empty promises. If just five percent of the people on the planet engage in spirited gold and silver purchasing as a hedge against the currency devaluation that continues to roil world markets, the precious metals will be in extreme short supply in just a few months, sending the price through the roof and forcing the paper exchanges into default for failure to deliver.

For stocks, the incessant ramping due to non-stop easing in the form of outright money printing and de facto devaluation of currencies - especially the US Dollar, Yen and Euro - is nothing more than a function of excess capital looking for a place to go. With hedge funds and the mega-banks leveraged to the hilt, a hiccup from the gold bugs or the bond markets could trigger a selloff, complete with margin calls and scrambles for cash.

The global economy is being tested for all its Keynesian worth, though it seems the Austrian economists may be gaining an upper hand. The failed policies of the Fed, the EU and the Bank of Japan demonstrate just how desperate the central bankers are to keep economies functioning despite sure signs of a slowdown.

While it is usually unwise to fight the Fed, they themselves should be reminded that markets matter and manipulated markets and fiat currencies have an inglorious history of abject failure.

Today's fall-off in stocks could have been due to a wide range of causes, though it may just have been a front-running of tomorrow's first look at first quarter US GDP. Estimates are as high as three percent, and missing that mark may be the one peice of economic data that the stock jockeys just cannot stomach. If GDP comes in quoted at under two percent, look for a rush out of stocks and into treasuries, which have been in a state of suspended animation between 1.68 and 1.72 percent for more than three weeks.

Then again, its hard to beat a size player who keeps flooding the market with $85 billion per month and the outsize easing from the BOJ.

Dow 14,700.80, +24.50 (0.17%)
NASDAQ 3,289.99, +20.34 (0.62%)
S&P 500 1,585.16, +6.37 (0.40%)
NYSE Composite 9,188.86, +42.40 (0.46%)
NASDAQ Volume 1,971,246,250
NYSE Volume 4,198,031,000
Combined NYSE & NASDAQ Advance - Decline: 4182-2226
Combined NYSE & NASDAQ New highs - New lows: 472-29 (extreme)
WTI crude oil: 93.64, 2.21
Gold: 1,462.00, +38.30
Silver: 24.14, +1.307

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