Gold Rips And Stocks Dip As Risk Assets Recouple To Reality

Tyler Durden's picture

If we had a penny for every equity rally away from credit reality that converged back to credit's less-hopiness, we would now have made 5 pennies in the last 6 trading days. We pointed out last night that equities surged into the close on small average trade size as credit remained far less sanguine and the now-ubiquitous open in Europe started the reversion as stocks fell rapidly, below Friday's close - tracking back with high-yield credit's deterioration. HYG gave up yesterday's gains and pops back under fair-value but rather notably, investment grade credit (IG) underperformed significantly today - which is unusual in a sell-off day and signals either more fallout from JPM reaching for hedges (IG9 10Y 166bps offered +5bps) or investors grabbing the cheapest macro overlay from a carry perspective.

The S&P 500 e-mini futures (ES) contract saw its worst loss of the year...

Treasury yields dropped the most in 7 months leaving 10Y at record lows and 30Y close.


Either way - not a good day for credit or equity markets at all with Energy and Financials bashed (-3% and -2.3% respectively) but YTD (chart below), financials remain +6.8% versus energy's -7.1% performance. The major financials crumbled today.

Gold and Silver outperformed admirably on the day, however the upward move appears to be more of a reaction back to equity, treasury, and USD reality as the afternoon saw the 4 markets recouple and trade together (after disconnecting notable yesterday).


Oil was crushed (hence energy above) to $87.60 by the close, now down 3.6% on the week and Copper didn't do much better on the day - leaving gold the week's best performer (down only 0.5% - admirable with the USD up 0.82%).

The EUR just kept going today with no real change post-European close (apart from Gold's reversion), which is unusual, closing well below 1.24 on its biggest drop in 5 months. JPY strength (red arrow) suggests more carry unwinds and repat flows to drive JGB curves even more inverted (as Swiss 2Y moves more negative - touching -20bps today).


Both implied correlation (systemic risk) and VIX (normal vol) jumped higher today as the latter moved almost 3 vols to close above 24% (its biggest pop in almost 3 months). A heavier volume open at highs, close at lows day for stocks with little to signal capitulation in terms of trade size - and across broader risk-assets, stocks appear to have room to fall.

While broad risk-assets (as proxied by our CONTEXT model) deteriorated significantly more than stocks today (mainly driven by Oil, TSY 2s10s30s, and TSY level changes - though FX carry was also negative) tending to bias us to expect more weakness overall - we are more concerned by the increase in correlation (lower chart) which tends to occur when risks start to become systemic (which also fits with the lack of any bounce into the close in stocks)...

So worst loss of the year for ES, financials fubar, systemic risks (VIX, implied correlation, and realized cross asset correlation) are soaring, no bounce in stocks and bonds at record low yields - apart from that, what is there to worry about?

Charts: Bloomberg


Bonus Chart: the S&P 500 e-mini futures saw 1315 (a level at which we closed 4 of the 5 trading days last week!!) as a major auctioning point today - but eventually we fell through, with a truly ugly close...

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Boilermaker's picture

I'm guessing at 6:01 EST the ES will be +4 and then climb through the night.

Just a wild ass guess.

Comay Mierda's picture

of course, the banksters gotta get the moms and pops back in tomorrow morning and sell into the dumb money all day long

Cognitive Dissonance's picture

Just tell me when to BTFD.

Where are all those (ZH BTFD) trolls by the way?

CClarity's picture

Skulking around pressing the down arrow

LeonardoFibonacci's picture

Gold at $1564/ oz is not "ripping" as the article claims.  Gold should be at at least $1900 right now with all this turmoil.  MANIPULATION is the name of the game by the umbrella corporation.

CrashisOptimistic's picture

At 1.62% and actual, useful commodities in freefall, it's pretty hard to make a case for anything other than crushing, relentless deflation.

It very specifically is the sort that QE can't fix because there is no scarcity of liquidity and buying bonds to "drive yields down" simply makes no sense at all at 1.62%.

Deflation reigns supreme and one has to configure accordingly.

Rainman's picture

Patience, grasshoppa.....strong dolla big wall to climb

ArrestBobRubin's picture

Cog does this mean you haven't been B'ing the F'ing D? The F'ing D has been on for 9 months.

What is it that you're waiting for, lower paper prices?

With respect,

A ZH BTFD troll.

Cognitive Dissonance's picture


I have been buying the PM dip. Does that count?

junkyardjack's picture

Its not BTFD yet, we'll let you know.  You can dip your toe in AAPL if you'd like...

Cognitive Dissonance's picture

Sorry. Still bailing water after hitting the Faceberg.

But thanks for the tip. :>)

BeetleBailey's picture

Someone (try to) explain this to me;

Richard Fisher, after a speech, as to the Fed easing more;

"I don't hear any business people and job creators saying, 'I need more liquidity, I need more money,'" Fisher told reporters after a speech.


Right fuckin here, Robot Trader's dupe. Please play in the paper playpen. When it gets set on fire, don't cry, just enjoy your own home bar b q. From $35.00 an ounce when I was young to what it is today is progress by any measure. I don't give a fuck about the quarterly timeframe, or the volatility on a monthly basis. One thing, and one thing only matters. $35.00 versus $1565.00. A slight upward trend in value. Stick that up your poop chute, and rotate on it.

disabledvet's picture

The trend this season has been "market gets hammered utilities power higher" and vice versa. Sorry but I just don't see that as bearish relative to this constant harping on "credit." YIELDS ARE DROPPING...ergo "money is cheap" while financing is for all intents and purposes "free." I DO understand how an uber dollar can wreak havoc in the equity space however. Just look at the commodity complex. Provided the Federal Government keeps "getting away with murder" however I still fail to see the "collapse thesis" vis a via equities or more amazingly treasuries as well.

Confundido's picture

Someone or some algo doesn't want to see gold trading above Euro 1,266/oz (XAUEUR Ccy), where the 200-day movavg stands now. I suspect that someone or some algo will make sure it doesn't happen overnight, after 3am ET. 

Overfed's picture

OK, ya' caught me! I still don't have enough yet, but when I do have enough, I'll let the price go up. ;-)

Boilermaker's picture

Who's going to be the first a-hole to say 'over-sold'?

Kitler's picture

The Zero Hegde crowd is once again completely missing the true selfless nature of the wonderful "Work of God" that Messieurs Bernanke, Dimon, Blankfien have embarked upon on behalf of all Christians all over the world.

Sure Ben, Jamie, Lloyd and other Bankers will almost certainly die wealthy beyond all belief... but like Jesus they do so at at a tremendous personal cost in the afterlife!

Mark 10: 21-25

21 Then Jesus beholding him loved him, and said unto him, One thing thou lackest: go thy way, sell whatsoever thou hast, and give to the poor, and thou shalt have treasure in heaven: and come, take up the cross, and follow me.

22 And he was sad at that saying, and went away grieved: for he had great possessions.

23 And Jesus looked round about, and saith unto his disciples, How hardly shall they that have riches enter into the kingdom of God!

24 And the disciples were astonished at his words. But Jesus answereth again, and saith unto them, Children, how hard is it for them that trust in riches to enter into the kingdom of God!

25 It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.

Mr Lennon Hendrix's picture

Oh how sweet!  The bankers will get us all to heaven!  What wonderful people they are!

onikoroshi's picture

Where is MillionDollarBonus when you need him???

HungrySeagull's picture

"Just how many a-holes are on this Ship?"


SheepDog-One's picture

Easing hopes have been pulled off the table and anyone is surprised the markets built on easing and promises of more free money are slumping? I'm not at all.

junkyardjack's picture

How are markets still so high with Treasuries so low?  I guess this is the money flooding out of Europe or something.  I'd expect the S&P to be down 300+ from current levels

ArrestBobRubin's picture

JYJ, I thought Jim Willie had one of the most brilliant bits of analysis recently regarding this... to paraphrase: "the dollar's recent strength isn't a "flight to quality", it's just a by-product of the chronic overuse of the Fed/ECB currency swaps now in place"


Bay of Pigs's picture

Bob, dont confuse that idiot with any facts. He still thinks the world is flat.


franzpick's picture

Factoring in today's USD 0.61 index rise, gold was really up $21.20 on the Kitco index:

apberusdisvet's picture

Leaving the Lusitania (Euro) to board the Titanic (USD)


Some fools never learn how to calculate risk

Bastiat009's picture

Gold is up a whopping $8 today ... that's quite a Rip. Wait, it lost nearly $20 yesterday ... oh, ok. 


ArrestBobRubin's picture

That's Mr. Gold to you fella. Like I give a Rip it's "down" $20??? Put another zero on the end and it still wouldn't matter.

"Gold is money, all else is debt"

HungrySeagull's picture

I think to rip a new one just to let out the gas.

JPMorgan's picture

 Guess their looking at the EUR and GBP price.

mayhem_korner's picture



If you listen carefully, you'll hear the faint gurgles of Robofader puking up blood...

DavosSherman's picture

Gold is now a bank tier 1 asset (up from tier 3) according to the new [proposed] Basel III rules.

ForWhomTheTollBuilds's picture

How long until proposed becomes actual?


You would think commercial banks would already know what way this is gonna go and front run it.

hamurobby's picture

I suspect they have known this was coming for a long time, and thats why its not at $300 an ounce.

xtop23's picture

Exports, hence GDP, are getting crushed by USD strength. Bernanke will print if things get too much more frisky. 

Here's the words from the clown himself courtesy of SeekingAlpha;


 Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

... If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.


He'll wait till the US begs for it if he can. I can't speak for June, I think he'll hold out longer than that, but there's no doubt he'll launch the choppers.


constantine's picture

Seems like the emerging market central banks are buyers at $1,530... according to Dan Norcini... and it seems as though his observation was validated today.

HungrySeagull's picture

The Centrals have to buy, they are afraid of what little nuggets are left on the planet to fall into the millions of little "Scrats"

A cookie for you if you know who Scrat is.