Morning Market Update June 21: Schrodinger’s Cat Bounce

June 21st, 2013 by

A day after the Fed-induced crash of everything but the U.S. dollar, traders are looking for a corrective bounce today. No one knows if it will be a resumption of positive markets, or a dead cat bounce, until it actually plays out.

With gold breaking the $1,300 mark to hit a 2.5 year low, and silver falling under $20, the physical market responded strongly. Yesterday proved that if the sale is big enough, buyers will find the ready cash to take advantage of it. Demand in both the East and West was strong, but not as strong as when April’s paper panic caused gold to lose over $200. Some large suppliers were reporting sales six to eight times larger than normal volume.

Gold and silver have been mostly flat this morning since the overnight bounce in Asia, as the market seems split on whether prices will immediately rise or not. Analysts note that many gold producers cannot survive if prices remain at or near $1,300, and may accelerate the cancellation of new projects and the mothballing of low-yield operations. This will squeeze supply, and bring prices higher, regardless of what happens on the trading floor.

In China, the central bank continues to keep interbank loan rates high, to squeeze the illegal “gray market” of under-the-table loans and outright speculation by banks. Banks have been taking advantage of the government’s easy money policy to push the envelope in maximizing profits, and have finally brought the wrath of the Peoples Bank of China upon them. Equities in China will be constrained by the illiquidity in the market, until the government feels the banks are cleaning up their act.

In Japan, the Nikkei gained 1.7% to close the week above 13,000. The index is up 4.3% for the week, the first weekly gain in five weeks.

Europe’s stock markets gave up early gains to end lower, as the Greek bailout situation seems to be turning sour, and wrangling over unified banking measures continue. The northern countries want more say, as they are the ones whose tax dollars are being given to the troubled countries in southern Europe.

In the U.S., stocks opened higher, but quickly settled downward. The dollar index is well above 82 today, as investors, unsure of where to turn, park their money in the greenback until the dust settles.

by David Peterson