While the extreme volatility associated with the 8amET hour in Gold and Silver trading is no surprise, the strength of the USD (helped by JPY weakness along with pretty much every other major) is slamming WTI crude, Gold, and Silver lower this morning. The Dollar Index move in the last two days is the largest in 16 months; Gold's 2-day drop is the biggest (ex-the crash) in 10 months.
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And Southwest Securities' Mark Grant sums it up best:
On February 12, 2013 I said in Out of the Box:
"The engagement is just beginning. It will be one of the most significant events of this year and the various skirmishes may lead us into some sort of planetary Battle Royale. It is not Star Wars but “Currency Wars” and you too can engage in the action."
On the same day the yen was 93.47 to the Dollar. This morning it is 101.40 to the Dollar. That is an 8% shift in three months which is a significant move in that period of time. Japan, with a nod from both the Fed and the EU, has actively begun to devalue their currency and to increase inflation before they enter some viral space that they cannot leave without more severe measures. What is happening, however, will cause further dislocations in my opinion and may well cause Europe to react and send the Euro towards 120 to the Dollar. As a matter of fact I think the major central banks are all engaged in a world-wide devaluation of currencies where they all will be worth less and then the relative valuations will all be lower as a result. The small blue and green pieces of paper will be smaller still and goods and services will be more costly.
As the "Currency Wars" go from skirmish to battle we are also faced with a great paradox in the gold markets. The price of paper gold is down, this is gold in any other form than physical delivery, while the demand for physical delivery skyrockets. There is a portent here I am afraid and an unsettling one.
Recently JP Morgan's inventory of gold at the COMEX fell from 2.4 million ounces to 160,000 ounces and we should all note what is happening. Also, recently, ABN Amro said it could not settle its gold contracts with gold and that settlements would have to be made in cash. It has also been reported that the LBMA is having trouble settling their contracts in actual bullion so that it is becoming apparent that something is amiss in the gold markets. China reported in March that their imports hit an all-time high of 223.5 tons. I would guess that April will overshadow March. While there is no apparent economic crisis the demand for physical gold and the vibrations in this market gives me pause that some game might be afoot.
If you consider what is happening in the currency markets and then factor in the demand for the physical delivery of gold there should be some additional note of caution in your evaluation of the markets. Smart money always moves first while dumb money lingers and is baited by those that take advantage of it. A sniff of Fear has returned to the marketplace and Greed may be in the process of giving way. Watch your backs!
Charts:Bloomberg