Morning Fundamentals: Gold Plunges

In a likely terrorist attack in the United States, two bombs exploded near the finish line of the Boston Marathon killing two people and injuring as many as 100 people. There are reports of people with limbs blown off and blood flowing on the streets. The latest reports indicate that a 20 year old Saudi national is being held in custody at a Boston hospital. A state trooper from Rhode Island gave the following chilling eye witness account. ‘‘I started running toward the blast. And there were people all over the floor,’’ he said. ‘‘We started grabbing tourniquets and started tying legs. A lot of people amputated. ... At least 25 to 30 people have at least one leg missing, or an ankle missing, or two legs missing.’’ Two further unexploded bombs have so far been discovered near where the first two explosions occurred.

Gold has plunged by the biggest amount in a single session in more than three decades as investors hit the sell button and the metal that has rallied for 12 consecutive years plummeted an astonishing 10%. After a plunge on Friday night that was precipitated by news that Cyprus would be selling gold to raise funds and heavy technical selling on the break of $1,530, the selling intensified after the release of worse than expected first quarter growth for China. The selling was savage and more than likely was accelerated by stop loss selling as the metal plunged below $1,350.00, losing almost $150.00 in a single ses-sion. The turmoil in precious metals was also mirrored by silver which plunged an extraordinary 11.3% and saw significant strength in the U.S. dollar and the Japanese Yen. Yen crosses were obliterated as yen gains accelerated.

U.S. equity markets were pummelled by free falling commodity prices and a slowing Chinese economy. The S&P 500 has lost 2.3% while the Dow Jones fell 1.8%. Shares extended earlier losses after the Boston marathon bombing. Furthermore, manufacturing in the New York region expanded less than expected according to figures releases by the Federal Reserve Bank of New York. Earlier in Europe, the DAX closed 0.4% lower while the FTSE fell 0.64%.

Commodity markets were witness to a once in a generation event that must have seen fortunes made and lost as the major indexes fell more than 2.2%. WTI crude was crushed under heavy selling losing almost 3% to $87.40. Precious metals were destroyed with gold losing 10% to $1,350, while silver went into free fall, plunging 11.3% to $22.65. Agricultural commodi-ties also recorded heavy gained while copper lost 2.3%.


EUR/USD has mostly managed to miss the bulk of the risk off falls over the last 24 hours in the wake of the weaker than expected Chinese data with GDP released at 7.7% against the expected 8.0%. Commodity based currencies were smashed as the risk off tone developed quickly. Euro dipped from 1.3100 to 1.3050 as money seemed to flow back into the Euro and the JPY for that matter. By the US open the Euro had returned to 1.3100 as traders seemed to be caught out by the moves in the other currencies and the cross effect. However, this was again to change as a flight to safety on the back of the Boston bombing news. Euro fell back towards 1.3050, breaking the previous support and extending to 1.3020 before slowing and pulling back into the close. We are looking for the Euro to play catch up over the next day or so, as the dust settles on these moves. Most of the advantages look to be in the crosses EURAUD and EURNZD.

Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH

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AUD/USD was again caught up in the risk off tone with the second day providing a bigger punch than the first. Chinese data was below the mark as markets were still positioned and believed the Chinese data wouldn’t disappoint being taken to the sword. AUD snapped the 1.0500 shackles to start a free fall that has taken even us by surprise. Initially the AUD found support at 1.0415 but by the time of the US open 1.0400 had been broken, just! Continued weakness in the commodity market and the terrible news about the Boston bombing saw the risk off tone build with AUD legging lower again and as we right the pair has cracked the 1.0300 handle briefly but still sits just into the 1.03’s. Its hard to say if the markets will continue the direction during the Asia session but it does seem unlikely. However, in saying that don’t be expecting a major pullback! We see the AUD sitting around the current level today while the market takes stock of the recent events. Expected range 1.0280/1.0400.

Compass Direction
Short-Term Medium-Term
NEUTRAL BEARISH
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