“A Flock of Ospraies” By Jon Nadler

Sep.03, 2008 in Investment Opinions, Market Outlook

“Gold headed back to revisit Tuesday’s low of $790 and then recovered once again before the close of futures trading, to climb back to just above $800 per ounce. The dollar gained further ground this morning, inching closer to 78.50 on the index, but gave up most of those gains after oil prices regained nearly $1 of their own earlier losses. News that the European economy contracted in the second quarter helped push the common currency to 1.44 against the greenback and only added fuel to the bonfire of commodities.

New York spot trading was off nearly $5 at $800.40 per ounce at last check, and doubts remain in place as to its ability not only to close above the round figure, but of avoiding a near-term decline to retest the $775 zone. Dollar strength is still sapping the confidence from among the remaining longs. Bullion is off nearly 11% over the past 30 days. Silver continued under selling pressure, opening at $12.90 per ounce, down 15 cents. Platinum fell $10 to $1373 and palladium declined $5, quoted at $283 per ounce.

Auto sales numbers released today showed carmakers skidding rapidly into what looks like a massive pile-up of unsold vehicles. Ford Motor led the sad sales list, with a near 27% drop in iron moved during the month of August. Its adopted child, Volvo suffered a 48.8% percent fall-off in sales. The Dow appears conflicted as it would like to celebrate the implosion in commodities but fears that it is a sign of another kind of contraction at work - one that cannot bode well for its component stocks. Oil speculators might be taking the slump in auto sales as a leading indicator of more demand destruction to come - as if the exodus of wounded commodity funds from the trading pits was not damaging enough.

Further price weakness continues to be the dominant feature of commodities trading. Speculators have been selling everything that even resembles a commodity, in the wake of the spectacular Tuesday announcement that a $3 billion commodities-oriented hedge fund had collapsed. Ospraie Management’s flagship Ospraie Fund had lost nearly 40% during the August commodity meltdown and it has now been added to the pyre burning in that market since at least Independence Day.

It is believed that the fund in question has only ‘illiquid’ investments left as of now, but one has to wonder what was ‘liquid’ among the assets it held, most of which had to be dumped recently. Street talk is that the fund’s lethal hits came from bad bets on copper and natural gas. One also has to extrapolate that this failure is not going to be a ‘one-off’ event - not when considering the tens of billions that have been thrown at the commodities sector over the past several years. The possibility of a negative-feedback price loop developing in this niche is growing exponentially. Manipulation, yeah, right. Try wrong guesses first. Then, quickly scan the books to learn who is exposed to what.”

The full article is at:
http://www.kitco.com/ind/nadler/sep032008B.html

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