News broke on Friday in the Northern Hemisphere that metal specialist hedge fund Red Kite had suffered 20% losses in January in the metal price pullback. Red Kite holds US$1bn in funds. This has apparently led to the fund attempting to plug the money flow out of its coffers.
While nothing is at all clear at this stage, the news was enough to send metal speculators fleeing to the sidelines. The resultant freefall set off stop losses in London and ultimately saw zinc close down 10% on the day in New York. Copper closed down 6%.
It was the biggest one day fall in zinc since July 1997.
Gold also suffered a hit, with observers suggesting the metal was rife for some profit taking. A strong US dollar rally on readjusted non-farm payrolls was enough of a trigger, along with a further statement from the US government that they had no intention of going to war with Iran. Gold closed down US$11.30 to US$645.70/oz. In so doing, it defied a rally of 3% in the oil price.
Resources stocks may be lining up for a bit of carnage on the local bourse today, with Rio Tinto (RIO) trading down 2% in London on Friday. Zinifex (ZFX) could be in for one of its trademark volatile days.
There was little lead from US stock markets. The Dow closed down 20 points on Friday.
See last week’s Weekly Analysis (All The Damage That Has Been Done, 30/01/2007 – Rudi’s Views on top of the Cocpit) for more insights into the subject of professional investors and commodity markets.