Well well well,.. a good day for commodities.. finally.. !!!
Digressing.. investors or analysts tend to associate the reason to the event.. not the event to a reason.. They ( I am not an exception) tend to have a firm opinion on their opinion about the market and stick with it.. Since, the irrational behaviour in the market lasts longer than you are solvent, they market does not behave any remotely close to what they expect it to behave. Yet they stick to their convictions.. If market continues to go the other way, they kind of give up,, but this phase comes after they got totally obliterated (like I am now).. But what goes one way should go the other way too.. so eventually the market tracks the path the anaylst has predicted,, and well, thats when the analyst boasts "I said so!" .. . :)

Anyways, I spoke with an analyst who recently has been to a gold conference in Denver.. Interesting insights into whats happening in the markets.. From what I understand his explanation, most of US debt is held by central banks of other countries and the soveriegn wealth funds. Russia hold about 100bn of FNM and FRE debt, China a lot more and trillions of treasuries. Sinking credit markets in US has a nagative impact on the dollar and on the debt, logically so, the nations wealth ihas been eroding as fast as the dollar was sinking. When FNM and FRE were on the verge of collapse (technically they were not, as they were 'well capitalized - more than what is required by the mandate'), Treasury had to come in and bail them out. Well, this in a way is a lifesaver for the economy. and it was not in Fed's or tresury's interest to get on the bad books of other central banks.. From a different vantage point, Treasury and Fed's intention was to reverse the trade sentiment - short financials, long commodities, and by bailing out over a weekend, they infact did it. Commodities trade round the clock where as financial stocks only when the markets are open. Hedge funds who were short financials had to face margin calls on a monday morning, and had to sell the commodities.. Though financials were trading at prices not supported by fundamentals, funds could not short them as the naked short rule was put in place right on time. Add redemptions and liquidations to the equation. and the Soveriegn Wealth funds selling gold to support dollar (this is what text book does not teach - SWFs selling gold to bolster dollar.. the money they were making on the strong dollar was more than the money they were losing selling gold).. This in short explains what is happeneing in the markets, to the commodities, to gold..
When will all this come to an end?? when the selling comes to an end.. and I am not good at picking up the time correct.. It is wise, thus, to own options in commodities .. I happily own options of gold, Jan 09 exp.. 10 strike.!!! :)