Gold Plunges $100, Silver Drops 18%; World Stocks Struggle

Bikram Pandey
23 Sep, 2011
New York City

The U.S. indexes struggled to stay positive and lost more than 5.3% in the week. Gold plunged $101.90 or 5.9% and lost 9.7% in the week and silver tumbled 18%, largest one day loss in 27 years. Investors dumped stocks in Europe and Asian markets decreased.

[R]4:00 PM New York – The U.S. indexes struggled to stay positive and lost at least 5.3% in the week. Gold plunged $101.90 or 5.9% and silver tumbled 18%, the largest one day loss in 27 years. Gold declined 9.7% in the week and silver plunged 24%. The S&P 500 index earnings multiple is 20% away from its low in March 2009.[/R]

U.S. stocks struggled to stay in the positive territory after a two-day selloff that knocked off 7% from indexes. World markets dropped at least 4% in the week.

Investors are increasingly factoring larger than expected economic slowdown in the second half and lowering expectations. Commodities traded at a 9-month low and gold plunged 5.6% and silver tumbled as much as 18% in trading before closing down 14%.

For the week gold dropped 9.7% and silver plunged 24%.

The S&P 500 index is trading at 12.8 times trailing earnings and only 20% ahead of its multiple at the time of March 2009 selloff. Though the economy is at a different inflection point from two and a half years ago, the persistent talks of recession are unnerving investors.

At the time of the previous recession in the early 1980s, the earnings multiple on the S&P 500 index dipped as low as 6.5 in 1982 before the multiple recovered in the next 17 years in December 1999 to a historic high of 44 in the last century.

The S&P 500 index had the lowest earnings multiple of 4.75 in December 1920.

In corporate news, Hewlett Packard declined to a six years low after investors disagreed with the appointment of Meg Whitman as the next chief executive.

In earnings news, Cintas first quarter net earnings increased 12% to $68.6 million. Cavium update financial outlook for third quarter. Nike’s first quarter net income increased 15% to $645 million. Mosaic first quarter net earnings surged 77% to $526 million. TriQuint lowered its third-quarter earnings outlook.

European markets dropped for the third day in a row after a joint statement from G20 nations failed to offer any specific new initiatives and talks of Greek debt default intensified. The fire storm of talks in Washington among policymakers and world finance leaders failed to convince world markets as Greek talks drag.

Greek bond yields are forecasting that banks may have to agree on much higher losses than the 21% agreed in the swap expected to be completed in mid-October after the release of 8 billion euros tranche of bailout.

In Asian markets, export sensitive countries’ indexes led the decliners in the region. Market indexes in Hong Kong extended losses by 1.4% decline to 6.2% loss in two days and in India losses accumulated to 5.3% after 1.2% loss today.

Markets in Tokyo were closed today and the index in the export driven economies like South Korea plunged 5.7% and in Taiwan declined 3.6%. Philippines, New Zealand, Indonesia and Singapore declined smaller fractions.

Australian stocks extended losses for the second day in a row and declined 5.7% in the week and fell 8% in the month. The G20 statement failed to convince world markets and indexes in Asia declined.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield closed up to 1.79% and 30-year U.S. bond increased to 2.86%.

The U.S. dollar decreased to $1.3493 to one euro and closed higher against the Japanese yen to 76.55 yen.

Immediate delivery futures of Texas crude oil decreased $0.45 to $80.06 a barrel and futures of natural gas decreased 0.01 cents to $3.71 per mbtu and gasoline price rose 0.75 cents to 256.75 cents a gallon.

In metals trading, copper decreased 19.75 cents to $3.29 per pound, gold plunged $101.90 or 6% to $1,639.80 per ounce and silver dropped $5.80 to $30.75.