Kurt Brouwer August 11th, 2008
Metal Goes Soft (WSJ/MarketBeat Blog, August 11, 2008, Tim Annett)
…Futures prices on a range of different metals were flattened like a penny on a train track Monday. Comex gold for August delivery dropped 4.2% to $821.50 a troy ounce, in the biggest one day drop for the shiny stuff since March 19. With Russia and Georgia locked in a worsening armed conflict and concern growing that the global economy is circling the drain, tradition would seem to dictate that investors scamper to safe-haven stores of value to lick their wounds and wait out the shooting. But gold is now enmeshed in its longest losing streak in more than two years, since a seven-day plunge that ended on June 14, 2006.
Other metals are faring no better. Comex silver dropped 4.6% on Monday and has fallen by 18% over the first seven days of August. Copper shed 1.2% Monday to $3.3590 a troy ounce, its lowest settlement since February 6. The metal is down 18% from its early July record.
Market players say there appear to be few investors willing to step out and try to catch the falling knife – no matter what metal the blade is made of. “When [investors] want out, there is nobody to sell to,” Leonard Kaplan, president of Prospector Asset Management, said. “People are getting out of commodities in general. All of the funds are getting out.”
I think we have seen this before. The market action this year, in commodities such as metals or such as oil, illustrates George Soros’ concept of reflexivity almost perfectly. In his book, The Alchemy of Finance (Wiley), Soros wrote that markets are inherently reflexive. That is, buying begets more buying until a peak is reached and then selling begets more selling until a bottom is reached.
I can remember back in the very early 1980s, in a previous oil boom, the news that Chevron or another company had hit a big well would cause a nice pop in the stock price. A few years later when oil prices had tanked and the oil business was a mess, the same company would announce another solid oil well coming on stream — except, the company’s price would fall, not rise. By then, oil stocks had become dogs and nobody wanted to hear them bark.
The war between Russia and Georgia (see Oil Runs Through It — Russia Threatens Major Oil Pipeline) would have probably caused a pop in oil and even gold prices a month or two ago based on uncertainty over supplies and fears of inflation. Now, the same event does not cause prices to rise, rather prices for metals — oil too — just keep getting heavier.
