GoldMoneyNews'  Instablog

Global contagion fears drove the price of risk assets down in trading yesterday, with commodities and small-cap stocks fairing particularly badly. Precious metals were also hit in the general liquidation panic, with Comex gold for November delivery losing 2.7% ($46.40) to settle at $1,678.30 per troy ounce. Comex silver for delivery in the same month lost 4% ($1.30) to settle at $31.11 per troy ounce.

Platinum and palladium likewise suffered – The Wall Street Journal noting that investor demand for palladium has fallen significantly this year as a result of concerns over slowdowns in emerging markets. As one analyst quoted in theJournal notes: “many investors have been buying the palladium ETF as a play on growing emerging market auto demand. As the outlook for car market and emerging markets has slowed, so has enthusiasm from palladium traders." ETF Securities, the world's largest palladium ETF provider, said Monday its two palladium funds, ETFS Physical Palladium and ETFS Palladium Trust, have recorded $388 million of net withdrawals so far this year, leaving total palladium assets under management at $694.5 million.

As James Turk argues in his latest piece for the King World News Blog, the fallout from the MF Global bankruptcy is threatening another “Lehman moment”. As James notes: “investors should be concerned because everything is so inter-connected today. People call it contagion and this contagion is real because the MF Global bankruptcy is going to have a knock on effect, just like Lehman Brothers had a knock on effect.”

Furthermore, one insider is warning that the debt crisis in Europe will likely result in a bank holiday: in the words of Dr Pippa Malmgren – former White House financial markets advisor and former deputy head of global strategy at UBS – “ultimately, I will not be surprised to see Europe’s banking system shut for days while the losses and payments issues are worked out.” In contrast to the USA and UK, eurozone banks have not been recapitalised following the problems in 2007-08. Europe’s banks remain among the most highly levered in the world – with three-times as much leverage in the eurozone banking system as compared with the US.

Amid all the gloom and doom, however, US economic statistics continue to surprise mainstream economists to the upside. Yesterday saw existing home sales for the month of October rise by 1.4% to an annual rate of 4.97 million units from September’s revised rate of 4.90 million. Economists polled for Reuters had expected a fall to 4.8 million.

As is slowly becoming apparent in America, it is unwise to underestimate the power of a central bank that is determined to re-inflate the economy.