Emerging Markets Spark Flight to Safe Havens

I mentioned in an earlier post today that there was a general flight out of equities after the overnight news that Chinese manufacturing had experienced a rather significant slowdown. U S equity markets were spanked hard in the process ( of course the usual dip buyers showed up once again as they have been well rewarded for so doing time and time again).

Interestingly enough, it was the commodity-based currencies such as the Aussie and Kiwi ( initially along with the Loonie) which saw some heavy selling. The Aussie and Kiwi, with their close exposure to China, got hit the hardest which is understandable. I must admit at finding it odd to see the Kiwi rally back from its worst levels of the session like it did however.

I learned later in the session that the Turkish Lira hit another record low against the US Dollar. This was in spite of direct market intervention by the Turkish Central Bank.

This occurrence, along with the weakness in most emerging market currencies, was what sparked some strong buying in the Japanese Yen and the Swiss Franc today. It is also the reason, in my view, that gold experienced another one of those mini-melt ups that it has been famous for lately. It was odd to see the US Dollar sinking so severely on a day in which risk aversion was in, especially in regards to the EM's, but I think it was the lackluster US economic data, coupled with sinking interest rates here in the US coming on the heels of those big money flows into bonds, that undercut any safe haven bid that we might otherwise have seen coming into the Greenback.

Europe and Japan seemed to be the winners in the currency wars today.

Obviously that brought a fair amount of buying into gold as a safe haven, something we have not seen in a while as it and silver have tended to trade more in sync with the risk on/risk off trades, rising on the former and sinking on the latter. Well, today we got the latter ( risk off) and gold benefitted so go figure.

Just goes to prove how fickle these markets are anymore and why extrapolating too much from one day to the next's price action is not too advisable. During episodes such as this, TECHNICALS RULE THE DAY so whichever side, bull or bear, happens to have the technical on their side, will win the day's battle. That is what we saw today in gold.

I should note that silver does not know what it wants to do. It still is having large troubles with the $20 region as it is attracting selling up here. It cannot decide whether it wants to be a safe haven with gold or a risk on trade with copper. Right now it is caught in the middle of them both.

Today's move higher in gold seems a bit overdone to me, but that is more a hunch rather than anything grounded in pure Technical analysis as the gold chart is very much improved by today's strong push higher. We'll see if the bulls can grab the initiative completely in tomorrow's session or if they decide to bank what paper profits that they made today and rest content with those.