The Mess That Greenspan Made - Part 416

Margin Calls Whack Gold

You hear a lot about traders selling gold to meet margin calls in order to cover other losses being a major factor in the nosedive for the yellow metal. Here’s a graphic example of how that’s worked recently as, on at least three occasions in the last few weeks, a big sell-off in stocks is followed by a sell-off in gold the next day.

On September 9th and 21st, while equity markets were plunging, the gold price held up fairly well, but, on the 10th and 22nd the gold price tumbled, margin calls for the prior days’ losses presumably being a big  factor. Of course, the gold price doesn’t always fall the day afters stocks do, but on the big moves down, there appears to be a high correlation.

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What’s New in Elko, Nevada?

Taking a quick break from the market madness (hey, the 30-year Treasury yield is up 8 basis points today – to 2.86 percent!) to have a look at this LA Times story about Elko, Nevada seemed like a good thing to do this morning as we’ve been through that area a number of times in recent years, always finding it difficult to get a hotel room.

Elko, Nev., takes the gold boom with a grain of doubt

Mining firms are hiring, but the city government, and even mine employees, are wary. Only a decade ago, tanking gold prices saddled the region with abandoned homes and tarnished dreams.

This far-flung capital of Nevada’s Gold Belt is booming — very, very reluctantly.

With the price of gold in the stratosphere, the mine-chiseled corner of northeastern Nevada is scrambling to fill thousands of jobs, while newcomers to the barren region beg for somewhere to sleep. The motels: sold out. The apartments: good luck. The RV parks: get in line.

But you’ll find little of the gold-rush euphoria here that has long defined the American West. These days, Elko knows better.

Nevada is stippled with so many mining camp ruins — more than 100 in Elko County alone, locals say — that “ghost-towning” is a weekend pastime. Only a decade ago, tanking gold prices saddled the region with abandoned homes and shredded dreams.

Now the Elko city government is mostly socking away cash and putting off hiring, even for a police force strained by a transient population. Even among workers who feel blessed to cash paychecks, there is a sense of unease. Why buy a home here if the gold rush could vanish tomorrow?

There’s lots more to this report including the requisite human interest stories and more on the difficulties encountered by the local government in trying to deal with the boom as best they can. As for the prospect of the gold price tumbling back to levels that would bring the Elko mining boom to an end, you don’t have to look to hard at the world’s many intractable money problems to think that those chances are slim.

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Cross the Streams!

The market carnage in recent days has been something to behold and, as the debate continues about the degree the Fed’s “significant downside risk” view of the world the other day is to blame, that uncharacteristically sour view of things certainly didn’t help.

Anyone thinking that gold is a safe haven like U.S. Treasuries or the U.S. dollar has been reminded that it is surely not. At times like this, the yellow metal is sold along with everything else, reviving long before other asset classes, but only after policy makers start talking about how much money they’re going to print up for the greater good.

At least that was the lesson of 2008, which, given how conditions have deteriorated in recent days, would be the appropriate comparison. Sadly, it appears that the question of whether 2011 will “rhyme” with 2008 or 2010 is now being answered.

But, in the mean time, lower prices are available for investors seeking to trade in some of their increasingly shaky paper money for something more substantial.

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Friday Morning Links

MUST READS
Greek default talk gathers pace – Reuters
Fear gauge enters the red zone – Telegraph
Fed watchers stunned by market downturn – MarketWatch
Leading Economies Try to Reassure World Markets – NY Times
Faith in policymakers plunges, taking markets with it – Reuters
French, German Bank Credit Default Wagers Soar – Bloomberg
IMF chief tells Europe: you must bail out the banks again – Guardian
Rosenberg on How Bernanke Disappointed the Market – Zero Hedge
Super Committee: Another Exercise in Futility? – Fiscal Times
Obama Takes Aim at Tax ‘Targets,’ Fires Blanks – Baum, Bloomberg
Moody’s Bank Downgrades: What, Us Worry? – Taibblog
The Unexamined Crisis – Project Syndicate
Spain’s Banking Mess – NY Times

MARKETS/INVESTING
Oil below $79 as fears grow over global economy – AP
Gold falls to 6-1/2 week low on commodities sell-off – Reuters
Is market replaying decade of the 1930s? – MarketWatch
AU $1700: Some Thoughts For The Gold Bulls – Forbes
Dennis Gartman: Wait for Gold to Trade $1695, Then Buy – CNBC
The Biggest Bubble of All Time: Commodities Market Speculation – EconoMonitor
Silver biggest loser so far in precious metals and markets sell-off – Mineweb
Shades of 2008: Is this how the gold bull market ends? – Mineweb
What Operation Twist Means for Gold – Crossing Wall Street
US Dollar Is ‘Not a Safe Haven’: Jim Rogers – CNBC

ECONOMY/WORLD/HOUSING/BANKING
Global economy alarm bells ring – CNN/Money
Global leaders struggle to calm recession fears – AP
U.S. Consumer Confidence Falls to Lowest Since June ’09 – Bloomberg
In Europe, bonds deemed risk-free fueled debt crisis, analysts say – Washington Post
China says yuan rise can’t solve trade imbalance with U.S. – Reuters
South Korea and Indonesia central banks move on currencies – BBC
EU says 420 billion euros injected into Europe’s banks – Reuters
How the Weak Housing Market Hobbles the U.S. Economy – Infrastructurist
Fed’s ‘Operation Twist’ Fails to Convince Investors – Bloomberg
Boehner Blames Fed for ‘Enabling’ Political Gridlock – WSJ
Working on the Wrong Margins – Fed Watch

 
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