Bear-Market Roar Grows Louder

The last 24 hours have been brutal for stocks, commodities and the euro, with news that depositors yanked close to €100 billion out of Spanish banks in the first three months of the year -- the fastest drawdown since Spanish records began in 1990. The Italian unemployment rate is now above 10% and European Central Bank chief Mario Draghi is warning that the euro zone is “unsustainable”. U.S. Q1 GDP growth was revised down from 2.2% to 1.9%, emphasising that the U.S. economy is once again slowing, while claims on unemployment benefits increased by 13,000 when economists had expected no increase.

To top it all off, data this morning shows U.K. and euro zone manufacturing activity back at lows not seen since early 2009, while similar data from China also shows continuing contraction there. Brent crude oil is now below $100 a barrel, the first time that's happened since October last year. Meanwhile, the euro is trading below $1.235, and looking like it will soon test the low seen two years ago at $1.20. The U.S. Treasury market continues to be the main beneficiary of this flight from growth assets, with the 10-Year Treasury Note now yielding a paltry 1.56%. The dollar also continues to gain ground, along with the yen -- that other supposed “safe haven”. For its part, the Dollar Index is now at 83.30.

Given the washout in commodities, gold and silver are hanging tough -- with gold finding buyers on dips below $1,550, while silver appears to have found some support around $27.50. Eric Sprott sums up the situation in gold aptly:

The recent gold price has been particularly frustrating given the continuation of bullish demand trends out of China. China posted another record Hong Kong gold import number in March of 62.9 tonnes. Gold imports into China have now totalled 135.5 metric tonnes between January and March 2012, representing a 600% increase over the same period last year. We don’t have to connect the dots here – China is stockpiling the precious metal while investors in the West scratch their heads wondering why the spot price is so low.”

Buying the dips in precious metals remains a smart strategy.