What the heck is going on in the markets?


At Kamaaina Loan we often say — it’s not a lament, just a fact — that we are at the mercy of the world gold market. Buying and selling (or making loans against) gold is our bread-and-butter, and when the price falls as it has recently, it hurts.

Not just our bottom line, but it lowers the amount we can offer on pawn loans. So, such is life.

But most of the time, prices — not just gold but most prices — move in a comprehensible way. There are trends you think you can rely on at least for a week or so. Gold, for example, has been trending down for over a year. Less heralded, the world price of oil has been going down.

You wouldn’t notice from pump prices on Maui, but according to Bloomberg News, the price is almost low enough to make the famous Keystone Pipeline a non-starter. All that political furor and $90 a barrel oil could make the arguments moot.

At the current price of about $87 a barrel, cheap American crude undercuts many of the most aggressive oil projects under consideration by the oil majors. About $1.1 trillion of capital expenditures have been earmarked through 2025 for projects that require a market price of more than $95 a barrel, according to a May study by the Carbon Tracker Initiative, a London-based think tank and environmental advocacy group.

At least the oil price drop is easily understood: production is way up and demand is stable or slightly falling.

But the securities markets seem to have lost their mind this week. Tuesday was the best day of the year, and today the overall market is swooning in a most remarkable way.

U.S. stocks plunged, with the Standard & Poor’s 500 Index’s erasing its biggest rally this year, on concern that slowing growth in Europe will hurt the American economy as the Federal Reserve ends its bond purchases.

All 10 of the main S&P 500 groups dropped at least 0.8 percent, with energy stocks plunging 3.5 percent to pace losses.

In a general way, a falling stock market is supposed to be good for gold, and this seems to hold true this week, although only in a modest way:

A combination of heavy short covering in the futures market, bargain hunting and safe-haven buying boosted the yellow metal.

After dropping well below $1200 early in the week, spot gold (the price of concern to Cash For Gold) rallied to about $1225.

For those who keep score, that is right where Goldman Sachs, a year ago, said gold would be around the end of 2014.

From our point of view, when gold behaves this way, your pawnbroker is your friend: If you need to convert your gold to greenbacks, you probably don’t want to sell at these price levels. But you can take out a pawn loan, reclaim your gold in 30 to 60 days and hope for higher prices in the future.

#mauipawn #mauigold #mauishopping