Markets: Gold, Silver Still Down, Shares Steady

It's now clear that gold and silver have emerged as the major casualties of the current sell-off, only 10 days after gold dealers and several leading forecasters predicted the price would top $US2,000 an ounce by the end of the year.

Both metals were down again last night and this morning, although both traded higher in after hours dealings.

Stockmarkets however rose in Europe and the US with gains of 1% to more than 3% (in Italy and nearly 3% in Germany).

The Dow was up 2.5%, the S&P 500 rose 2.3% and the Nasdaq was up 1.3%.

Asian markets will rally higher today after their late weakness yesterday, especially in Australia were the ASX 200 futures contract was up more than 2.5% overnight.

In fact it's pointing to a rise of more than 100 points at the opening bell,

The Australian dollar rose 2 cents from its low here yesterday or a nervous 96.40 US cents to end around 98.50 US cents this morning.

Gold stocks here were down 8% to 10% in some cases yesterday and will come under more pressure this morning after another less than inspiring trading session in Europe and the US.

While the forecasters such as Reuters/GFMS didn't rule out short terms falls as traders took profits and the price adjusted to its 30% run in the past couple of months, no one saw a sell off so violent as the one we have seen in the past week, especially the last three trading days.

Since last Wednesday, gold prices have fallen by up to $US270 an ounce to hit a low of $US1,534.49 overnight Monday.

Gold traded around $US1606 an ounce in post settlement trading in the US and Asia Tuesday morning, our time.

It had earlier settled at $US1,594.80 an ounce on Comex in New York, down $US45 an ounce on the day.

That was the lowest settlement since July 21.

After hitting a record high of $US1,920 just three weeks ago, it has dropped 20%, with half of that fall coming on Thursday and Friday of last week and overnight Monday.

The US dollar, which usually helps drive the price movements of commodities such as gold, hasn't risen by 20% or anywhere near it in the same time.

The Financial Times gave three possible reasons why gold has sold off.

It said "one explanation is the dollar's rally since the announcement by the Federal Reserve last week of "Operation Twist", which will reshape its bond portfolio.

"Another is that investors have been forced to sell gold to meet losses elsewhere.

"Finally, CME Groupwhich runs Comex, the New York exchange where gold futures are traded, said on Friday night it would raise by 21.5 per cent the margin requirement - or capital that needs to be set aside in order to trade - for gold."

But while all these factors contributed, the talk in markets is that there's something more here that is rarely seen in gold: it's a repeat of the sell of in 2008 when it lost 30% and in November 2009, when it fell 12% (after Dubai World financial problems were exposed).

Gold bulls say the price recovered after those two sell offs and hit all time nominal highs, especially this year.

But gold has once again failed to act as the ultimate form of insurance against the sort of market turmoil we have seen in the past week.

Gold lost 5.9% last Friday, silver futures shed 18% in one of the most violent one day sell downs we have seen for quite a while.

Silver, which had wavered traded in big swings overnight, closed lower, with the Comex December contract off 13 cents, or 0.4%, to settle at $29.98 an ounce, the lowest finish for silver since early February of this year.

In after hours trading it regained the $US30 an ounce level to trade around $30.26, up half a per cent. The spot price hit $US28.22 at one stage during trading overnight, a loss of 16% on the day.

It later recovered.

Worrying some analysts theway many gold speculators have closed out their trading positions.

Weekly data out yesterday data shows that speculators cut their holdings to their lowest level in over two years, as reflected by the fall in net non-commercial open interest on Comex.

That indicates that gold futures contracts have been closed out or sold to raise cash for use elsewhere because the speculators were sitting on big profits.

Speculators needed more liquidity and selling gold was the easiest way to get it.

Earlier in Asian trading Japan's Nikkei fell heavily, down 2.2%, catching up with Friday's sell off on Friday in Asia.

Hong Kong's Hang Seng Index skidded 3.6% at one stage, but closed down less than 1.5%.

The Shanghai Composite Index dropped 1.6%, South Korea's Kospi lost 2.6% and Australia's S&P/ASX 200 index fell 1% after being up 1.3% in early trading.

Some of the smaller markets saw severe selling, with the Stock Exchange of Thailand Index off 5.8%, while Jakarta's JSX Index lost 3.8% after last week's 11% fall.

Markets in the Philippines, Malaysia and India also fell, off more than 2%

In Australia the turnaround in the day from cheer to gloom was around 2.3%.

After opening 1.3% higher shares leaked their gains during the morning and fell into the red in the afternoon, and closed sharply lower.

The benchmark ASX200 index fell 39.3 points, or 1%, to 3863.9, while the broader All Ordinaries index dropped a bigger 50.9 points, or 1.3%, to 3927.6.

Australian gold stocks led the declines, plunging 9.7% after the gold price fell again yesterday, extending Friday's $US100 slump.

Gold miner Newcrest was the biggest drag on the local market, plunging 8.5%, or $3.04, to $32.86.

That's the stock to watch for this morning.