Yesterday's drop in commodities?

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Was anyone else yesterday paying attention to the drop in precious metals? I took the opportunity to do some minor buying but when I talked to the sales agent it sounds like the story on this goes that the Fed is trying to, through JPM, make the dollar look stronger than it is and thus it had to create a lack of confidence in metals. It sounds like there's a race to the bottom right now in terms of currency value, BRICS is trying to get themselves self-sufficient apart from the US, and to top it off there's something like 175 trillion in unregulated derivatives out there right now which is several times over the entire world GDP.

Anyone else feeling a bit nervous about the financial news?

It's the end of the supercycle, that's all. We've been waiting for it and, frankly, I'm surprised that the ride lasted this long. It was patently obvious from Chinese economic numbers that demand was going to slip for commodities. This isn't an artificial move by the Fed, this is the reality that Chinese growth cannot keep up its breakneck pace.

The drop is bigger than merely gold and silver. Copper's down 2.3%. Oil's down 2.8%. Wheat, coffee and other crops are all down. It's a market correction. Demand will stabilize prices at a new equilibrium, and the market will recalibrate accordingly.

The Canadian dollar will get hit, but it won't be a hard hit. Every drop in the CAD improves the Canadian trade outlook, so a bit of a slip from parity with the USD is not a bad thing.

Government securities will tick up a bit. All reserve currency issuers except the ECB can expect some movement away from gold into bonds until the dust settles.

The global economy has no signs of growth so, fearing that countries like Cyprus(due to their ridiculous bank run, that had damental repercussions all over the EU's bank). Portugal is evaluating if they should use their gold to actually pay their debts. Countries like China and the United States are the most responsible, as they are the basis of the worldwide economy.

So, what now? Of course, people are just selling their gold until it's too late. Stimulating the economy is needed, folks.

Tragedy:

Commodities go down because depression is expected. Gold goes down also because high interest rates are expected. My guess is that number two is not likely, it's depression, depression, depression thanks to the austerity mongers.

The Fed has been buying bonds because of lack of demand.

They have also been buying issued bonds to supply the banks with interest free cash, to invest in stocks and commodies, which has driven the market to record highs.

Stocks are the Pension Funds, commodies are the exports. Jobs and housing not so good, but this Recession is great for banks.

Selling gold futures below market, dropped the gold market, to where some ten Trillion just vanished, and now bonds look like a better place to park cash.

Gold buyers buy gold, Bond buyers give cash to the government, for a promise.

The Fed cannot just keep buying, so a little market fixing, cash flows into bonds, and the drop in gold is more than the lower forward selling, so the Fed will profit on the contracts.

Also, knowing that gold will recover, the Fed is buying on the dip.

In China and India the people hold gold, so their savings were given the haircut, which will depress their economy. Food and oil will cost more.

Those who held the Dollar, Reserve Currency, did OK.

The lesson here is buy Dollars, use them to buy Bonds, because gold, food, fuel, are subject to market corrections.

After we roll over all of our debt at record low interest, locking investors in for ten or twenty years, higher interest and inflation will cause bonds to lose.

A million in bonds @ 1%, pays $10,000. New Bonds at 4% would discount the ten year 1% bonds to yield 4%, which is about half their face value.

We are locked in drought, which shows no sign of ending, and grain prices drop? Just as farmers have to sell futures to fund the planting?

The root of this problem is having a government that spends a third more than it takes in. They have become beholding to the Banks, the Markets, to sell Bonds.

Citizens United is equal to the Magna Carta, Corporations now have rights that were reserved to the Government. They did it the same way the Barons did, they loaned money to the Crown.

If what the OP is saying about Fed action is true, then I think the end of the commodity supercycle is nothing to worry about. Even if these major drops forecast declining demand, much of the rich world is more resilient than it was in 2008. Households and firms are way more de leveraged now than in 2008.

What might be happening is that the Fed may be trying to deflate a nascent bubble in commodities. You may recall how the very early stages of the financial crisis saw massive commodity inflation, where crude oil started the year at $98, peaked at $147 in July, then dipped below $40 in December. The consensus I have heard is that investors plowed money into long positions, and treated commodities as an asset class with a yield. We know where that lead.

I imagine the Fed is attempting to prevent a commodity price bubble, especially because QE makes the market a bit more frothy. They are probably hoping that money instead goes elsewhere, like in equities.

New markets keep opening though, so we're going from an artificial to more natural situation with time.

Pension funds have been proped up, where the government would have to pay if they failed.

This still leaves the banks holding bad debt, commercial property being the worst. 2,000 malls closed, Borders, Circut City,

Mark to Market is still missing, Banks are trying to recapitalize on commodies, oil, and played that till the economy started to stall.

Transfering the bad debt around does nothing.

There is still a yawning pit of debt, housing, credit cards, student loans, that are not sure bets at any time.

There is nothing around like the housing bubble, computers, the internet, and everyone has a phone.

The lack of manufacturing is the cause of declining wages, which stalls out the consumer economy, which was three quarters of the whole.

This is going to be the long term depression, creeping it's way up the job chain. Millions out of work going on five years, job creation going no where.

The war babies just starting to retire, a huge and long term demand on government, who did borrow all the cash from Social Security, and now have to make good on their IOUs.

While old debt can be reduced by inflation, future debt, Social Security, grows. The gross domestic product is no longer labor paying taxes and social security, it is multi nationals making income offshore, and keeping it there.

The only way is raise taxes from $3.5 to $5 Trillion, which is a 50% increase. That is going to take taxing all income, made anywhere, and social security on all personal income.

Reviving the economy is going to take more. With a declining base, increasing population, there are headwinds.

Deport illegals, stop legal, early retirement, build some new cities where people can work off their student loans, and start a life.

The cities of the future will be walking, biking, public transportation, with a low energy use per person, and secure supplies of water, local food, as part of the plan. Sewer and garbage recycled into local production. Go for off grid, Place limits on how many people can move there, to assure a high quality of life.

The recent baby bust will help, in time, we need to plan for five million just out of college, a year, and 45 million retired baby boomers. Take that out of the rest, and figure out how to shrink older cities, there was some real ugly built since WWII, tear it down, refit city centers, make it livable.

It is going to get hotter, sea level will rise, the other models are Africa and Bangladesh.

The ever growing economy model has failed, the other choice is the ever declining population, more education and a shorter working life, or a decent into hell.

The choice is clear, life gets better, or worse.

I don't think one 'bad' day for commodities really means anything. A lot of them were back up today.