Gold moves convincingly to the upside in wake of global stock turmoil


Having steadied itself the past few trading sessions, gold moved convincingly to the upside in the wake of yesterday’s global stock market turmoil. It is up $14 in the early going at $1208.50. Silver is up 15¢ at $14.47. The fact that gold broke ranks with other investment markets at a time of crisis is notable. In the recent past, its reaction to major disruptions has been to follow along with the crowd in the first stages – at least until the nature of the crisis took form. Capital this time around is moving in the direction of gold on short notice.

A significant portion of today’s upside occurred during Asian and European trading hours, but there was an additional surge higher (about $6) coming at New York’s open. “It was the perfect storm that gave U.S. stocks their worst day in eight months,” reports Bloomberg’s Justina Lee, sending European shares to the lowest since December 2016 and driving more than 1,000 Chinese companies to fall by the daily limit.”

We have reported on the “perfect storm” brewing in the global economy consistently over the past several months including the items mentioned in this Bloomberg report – interest rates, the trade war, the crisis among emerging countries, etc. What is particularly alarming about the current market situation is the widespread unleashing of primal forces all at the same time each fed by and contingent on the other – a pandora’s box that defies simple solution. Even if the current sell-off is contained over the next few days, we are likely to be left with a sense that it isn’t over, that there is more to come.

Quote of the Day
“A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a record 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruinous fall. Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.” – John Kenneth Galbraith, The Great Crash: 1929

Chart[s] of the Day

Chart note: Gold’s strong performance this morning after the stock market dropped almost 5% yesterday is notable because it breaks with the recent past and demonstrates, if the trend gains momentum, a resurgence of the safe-haven trade. (See the full DMR above for details.)


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