Stocks Near Unchanged, Gold and Silver Sell-Off Continues
Friday, September 23, 2011
The sell-off in gold and silver continued while equities managed to hold near the unchanged line. U.S. Treasuries showed some weakness as the freefall in equities halted for the moment, but the yield on the 10-year did make a new record high earlier. The yield on the 10-year Treasury had fallen below 1.70%, but finished at 1.83%.
A statement by the G-20 that they were prepared to act to counter clear signs of flagging global economic growth was seen as not much more than just words. Ominous rumblings out of Greece and Europe continue to percolate, and the growing possibility of a default by Greece continues to grow. While European banks are seen as able to deal with the direct impact of a Greek default the contagion effects are unknown, and potentially massive. Greek banks meanwhile, would immediately require a bailout, and where the funds would come from remains a mystery as Greece debt to GDP is expected to rise to 170% by the end of the year. Furthermore, a Greek default would immediately bring focus back to the other PIIGS, most notably Italy. The action of stocks and bonds are flashing that the global economy is heading into or already in a recession. If Greece were to crack, the possibility of a severe economic downturn that could easily rival the post-mortgage meltdown "Great Recesssion" would be in play.
Spot gold prices have plunged another $81.28 to trade at $1,658.20 per troy ounce. Spot silver prices were down $4.72 to trade at $31.18 per troy ounce. A notable feature of silver over the last few days has been its strong correlation with oil, even before the downturn over the last few days. It would appear that silver is currently trading more as an industrial metal, and less for its precious metal attributes.
Commodities outside precious metals are shaprly lower. WTI crude futures were down another $0.66 to trade at $79.85 per barrel. Copper futures were down another $0.2085 to trade at $3.28 pe lb.
Bloomberg is reporting that CDS spreads on French and German banks are soaring. No surprise here as the contagion risk from a Greek default is high.
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