Wednesday was a sour day for the markets are resurfacing Euro zone debt woes stemming from the latest Italian bond auction sparked a wave of risk-aversion as traders flocked to U.S. Treasuries and the dollar. The Nasdaq led the way lower, sinking 1.34% on the day, while the Dow Jones Industrial Average held its ground best, losing 1.14%. Gold’s price performance was well correlated with weakness in the euro, as investors were anxious to raise cash ahead of tomorrow’s longer-term Italian bond sale [see Are Gold ETFs The Best Defense Against Euro Drama?].
The European Central Bank saw its balance sheet mark a new high as it engaged in a massive lending effort to troubled financial institutions in the debt burdened currency bloc [see Euro Free Europe ETFdb Portfolio]. Uncertainty translated into strength for the U.S. dollar in the currency markets as investors flocked to the safe havens in anticipation of an ever “rougher” Italian bond auction tomorrow. Gains in the greenback created headwinds for commodities across the board, while basic materials stocks led the way lower on Wall Street.
The Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX), was one of the biggest winners on the day, gaining 4.19%, as expectations for uncertainty escalated amidst broad-based profit taking. With the final days of 2011 approaching, light volume trading has been a dominant theme as many are scrambling to “tweak” their portfolios and adjust their allocations heading into the new year [see Low Volatility ETFs Attracting Big Inflows]. As the unresolved Euro zone debt crisis continues to loom over financial markets, volatility is expected to remain abundant across every corner of the market.
The State Street SPDR Gold Trust (GLD) was one of the biggest losers on the day, sinking 2.50%, as traders locked-in profits to raise cash in anticipation of more volatility during the final trading days of the year. Gold prices plunged to a new multi-week low as selling pressures prevailed, with prices for the precious yellow metal settling right around $1,555 an ounce. GLD’s price action suggests that the fund may encounter more near-term selling pressures given the relatively high trading volume behind today’s sell-off [see Special Report: Gold ETFs In Focus].
Disclosure: No positions at time of writing.