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Gold Slumps- Its Like Trying to Catch a Falling Knife!

Commodities / Gold & Silver Jul 30, 2008 - 10:50 AM GMT

By: Mark_OByrne

Commodities Gold finished trading in New York yesterday at $91.00,  down $10.70 and silver was  down 10cents to $17.30. Gold rose slightly in Asian trading before falling.  It  is down again in early trading in Europe .

Slightly lower oil prices after yesterday's sharp falls are contributing to gold's further correction.


Despite increasing financial and economic risk gold fell yesterday on further oil price falls and a sharp rally in the dollar which took it to a one month high against a basket of currencies. But financial risk has not abated and the condition of the very financial system itself remains very precarious. Yesterday seems to have been a short squeeze dead cat bounce.

Smart money remains risk averse and the wise old market adage to "never catch a falling knife" has never been more appropriate.

The collapse of the world trade talks in Geneva is another bearish factor confronting the already slowing global economy and has serious ramifications for both the developed and developing world economies.

Financial System Itself Is Broken
The market action yesterday was particularly counter intuitive as the Merrill Lynch write downs were horrendous and in normal circumstances would have resulted in falling equity markets and a falling dollar. But with free markets now being impinged upon by the US Treasury, government and regulators anything can happen in the short term. The ever astute Nouriel Roubini, one of the few commentators to have predicted the scale of the current crisis wrote yesterday that

"If this is the way to run the finances of one of the largest broker dealers in the most advanced financial system in the world it is not wonder that this system is totally broken. The smart and very savvy Mohamed El-Erian (co-CEO of Pimco) put it in polite terms when he recently said while commenting on this financial crisis: "What has suffered most is the credibility of the most sophisticated financial systems in the world." It is both the credibility and viability of the most sophisticated financial system that is at stake now as most of this financial and banking system is on its way to substantial and formal insolvency and bankruptcy."

O n a daily basis there is such a plethora of negative and bearish news that it is hard to keep pace with developments. And many of the developments, particularly the response of government, Treasury's Paulson and regulators, will be seen as more short term "quick fix" attempted solutions which will actually make the crisis far worse in the medium to long term.

Short term, vested interest thinking and wishful thinking got us into this mess and more of the same will likely make the financial and economic crisis far worse. Ultimately, all the various mini crises will likely lead to a very severe monetary crisis and markets participants and investors would be wise to begin to hedge themselves against such a possibility.

Today's Data and Influences
Traders will be closely watching this afternoon's release of the ADP employment report for July, which should give some direction ahead of Friday's official  unemployment data. However, events on Wall Street will also be closely watched and sentiment remains fragile.

Gold and Silver
Gold is trading at $9 08 .20/9 08.70 per ounce (1 200 GMT).
Silver is trading at $17. 12 /17. 16 per ounce (1 200   GMT) .

PGMs
Platinum is trading at $17 38 /17 4 8 per ounce (1 200   GMT).
Palladium is trading at $38 0 /3 8 5 per ounce (1 200   GMT).

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold and Silver Investments Limited
No. 1 Cornhill
London,
EC3V 3ND
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
Email info@www.goldassets.co.uk
Web www.goldassets.co.uk

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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