RISING YEN IS ACTUALLY HELPING THE DOLLAR WHILE HURTING FOREIGN CURRENCIES -- AUSTRALIAN DOLLAR PLUNGES 5% -- GOLD AND GOLD SHARES ARE BEING SOLD ALONG WITH OTHER COMMODITIES -- S&P 500 REACHES 10% CORRECTION AND APPEARS HEADED FOR TEST OF MARCH LOW
GOLD SUCCUMBS TO SELLING PRESSURE... My optimism on gold as a potential safe haven is being severely challenged today. Gold shares are being hit especially hard. Chart 1 shows the XAU Index falling more than 5% and falling to a new 2007 low. Earlier in the week I suggested the drop in the XAU was being caused more by falling copper prices (Freeport McMoran Copper & Gold) than by falling gold. Copper prices are falling another 4% today and remain the weakest of the commodity markets. Chart 2 shows copper in danger of breaking its 200-day moving average and its May low. A close below that level would signal a copper top. The fact that industrial metals have become the weakest commodity group is another indication of a slowing global economy. The CRB Index is down 4 points today and is trading below its 200-day line. In a rare diplay of negative unanimity, all 17 commodities are in the red. That selling is spilling over to precious metals. Chart 3 shows StreetTrack Gold Trust Shares falling the equivalent of $21 today. The GLD is in danger of cracking its 200-day line as well. Commodity prices (and their related shares) are being sold as part of the heavy selling in stock markets around the world. Basic material stocks are being hit especially hard. Part of the selling of commodities is also tied to the rising dollar and a strong surge in the Japanese yen against all other currencies.
Chart 1
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WHY SURGING YEN IS HELPING THE DOLLAR AND HURTING COMMODITIES... The next three charts help explain why the dollar is bouncing during recent global turmoil and why that's hurting gold and other commodities. All foreign currencies have been falling sharply over the last month. Chart 4 shows the Euro tumbling to a two-month low. The Australian Dollar is falling much harder. Chart 5 shows the Aussie tumbling near 5% today and breaking its 200-day moving average. [Australian shares are also falling hard]. The reason for the meltdown in foreign currencies is the surge in the Japanese yen. Chart 6 shows the yen surging surging more than 7% today against the Australian Dollar. It's up sharply against everything else -- including the U.S. Dollar. The reason is that the rising yen is forcing global traders to cover their short positions in that low-yielding currency and selling their holdings in higher-yielding currencies elsewhere. The Aussie Dollar has been one of the world's highest yielding currencies. That's also contributing to heavy stock selling around the world. Since the U.S. Dollar is measured against a basket of foreign currencies, it's actually benefiting from the drop in most other foreign currencies. The dollar is also benefiting from a flight-to-safety from falling currencies in emerging markets as those stock markets selloff. The bouncing dollar is contributing to the commodity selloff.
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S&P 500 REACHES 10% CORRECTION... All global stock markets are under heavy selling again today. The S&P 500 has finally reached the first 10% correction since the bull market began more than four years ago. As you know, I've also been calling for the S&P to test its March low. It's not too far from doing that. The only sign of stability today is being seen in financial shares and small cap stocks. None of this should be too much of a surprise to those of you who have been reading our market messages over the last month. The big test now will be whether or not the S&P is able to stay above its March low. MORE AFTER THE CLOSE.
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