I just wanted to send out a quick update to everyone as we head into the close. Stay away from commodities short term.
Hedge funds are being forced to liquidate as they continue to get margin calls from the banks and redemption requests from investors. Gold has dropped 5%. The fundamentals for gold may be strong, but hedge funds need money so stay the hell away until this process is over!
Here is a gold update from Bloomberg. Gold is now down $45 a share. this has nothing to do with valuations. The reason the hedge funds are selling good stocks and commodities is because there is a lot of stuff on their books that has no bid right now. Securities like AAA subprime sandwiches have no value so the hedgies can't us them to raise cash.
This is also spreading into stocks in the equity markets. Wait until this process is over and look for a bottoming pattern before jumping back into commodities. This is a good thing because its going to create a great entry point on commodities like oil and gold when the hedgies are done liquidating.
Oil is another great example of this. It has dropped almost $10 on the day. These are incredible moves. Be patient before jumping into these. I expect that these margin calls are close to being over but today is not the day to try and find a bottom!
Don't forget that we also have a severe deflation threat to commodities as well.
Expect the close to be violent either higher or lower from here. The G-7 supposedly cannot come to an agreement on how to solve the financial crisis. This is creating some fear on the floor. Italy has supposedly not been very supportive.
This could spark another wave of selling Monday if the world cannot come to some type of agreement on global intervention that can relieve the credit markets.
Best wishes to all, and have a great weekend.