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The Week in Review – May 18th, 2012
May 18, 2012
Well it finally happened; JP Morgan has opened the proverbial “Pandora’s Box” and angered regulatory bodies on both sides of the Atlantic Ocean. Pressure is building in the global financial markets, with all of Europe sitting at the center of the storm. Pay attention to the fundamentals for precious metals, especially while the media outlets and stock markets are all totally distracted by facebook, or you may miss buying opportunities.
Tim Johnson, Senate Banking Committee Chairman, will be “inviting” Jamie Dimon to testify before Congress as a result of the recently announced massive losses at JP Morgan. Initially JP Morgan announced it had suffered at least $2 billion in losses, and that estimation has now escalated to $3 billion and looks as if it will climb even higher as hedge funds that are on the winning side of JP Morgan’s risky bet turn the screws to squeeze more profit out of them. According to the Financial Times (FT), more than a dozen “senior traders and credit experts” have told the FT that the Chief Investment Office, the unit responsible for the bad trade at JP Morgan, also has as much as an additional $100 billion in the very same risky bonds that crippled the financial system in 2008.
Initial claims for unemployment were at 370,000 last week, which the media spun as “holding steady” since the previous week’s figures were revised upward. The Philadelphia Federal Reserve’s index on business activity went negative in April, an indication that manufacturing in the region has gone from growth to contraction, which does not bode well.
Moody’s downgraded the credit rating of 16 Spanish banks this week, citing that “banks will continue to face highly adverse operating and market funding conditions that pose a threat to their creditworthiness.” Moody’s also stated “the Spanish economy has fallen back into recession in first-quarter 2012″ and that it does not expect conditions in Spain to improve this year.
World stocks, according to the MSCI Index, have given back all of their gains for the year. The ongoing financial crisis in Europe, particularly the escalating banking crisis in Spain seem to be key in the decline. Bad loans among Spanish banks reportedly hit their highest levels in 18 years this week according to the Bank of Spain. These figures were released only hours after Moody’s downgrade, adding additional pressure on Spain’s government to find a way to salvage the banking industry of Europe’s fourth largest economy.
US home mortgage rates are once again setting record lows, but no one seems to be buying. Tighter credit conditions continue to plague potential home buyers and a continuing decline in home prices has made those who do qualify for credit leery to get back into the market for fear that the bottom is not in yet.
In Asia, China’s home prices fell for the second month in a row as the government continues to try to rein in speculation in the property market in an effort to prevent a similar real estate bubble to that which struck the US as the financial crisis exploded across the globe.
The spiraling crisis in Europe seems to have definitively pulled the $100 floor out from under crude oil, and appears to now be threatening to push prices below $90 a barrel.
According to the European Union’s trade commissioner Karel De Gucht, continency plans are in the works in case Greece has to exit the Eurozone. This even as we hear constant, nearly daily reassurances by European policymakers that Greece will remain in the Eurozone. A German spokeswoman for the finance ministry, when asked about plans for a Greek Eurozone exit, said “The German government naturally has the responsibility to its citizens to be prepared for any eventuality.”
The euro continued its dramatic downward slide against the US dollar this week. The Japanese yen was dropping against the dollar for much of the week, but reversed course and ended the week higher against the dollar.
Friday to Friday Close
| May 11th | May 18th | Net Change | |
|---|---|---|---|
| Gold | $1584.00 | $1592.00 | 8.00 + 0.51% |
| Silver | $28.85 | $28.70 | (0.15) – 0.52% |
| Platinum | $1470.00 | $1455.00 | (15.00) – 1.02% |
| Palladium | $600.00 | $605.00 | 5.00 + 0.83% |
| Dow Jones | 12820.60 | 12375.13* | (445.47) – 3.47% |
Previous year Comparisons
| May 20th, 2011 | May 18th, 2012 | Net Change | |
|---|---|---|---|
| Gold | $1509.00 | $1592.00 | 83.00 + 5.50% |
| Silver | $35.10 | $28.70 | (6.40) – 18.23% |
| Platinum | $1770.00 | $1455.00 | (315.00) – 17.80% |
| Palladium | $735.00 | $605.00 | (130.00) – 17.69% |
| Dow Jones | 12512.04 | 12375.13* | (136.91) – 1.09% |
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
|---|---|---|
| Support | 1570/1550/1525 | 28.00/27.50/27.10 |
| Resistance | 1600/1640/1670 | 29.00/29.50/30.00 |
| Platinum | Palladium | |
|---|---|---|
| Support | 1440/1420/1400 | 580/550/525 |
| Resistance | 1475/1500/1520 | 620/640/680 |
Volatility should be expected to continue and perhaps increase further. As we said at the start of this memo, JP Morgan has opened the proverbial “Pandora’s Box” this time. Their previous $2 billion trading loss has ballooned to $3 billion in just 4 trading days, and looks set to continue to escalate as hedge funds on the other side of the trade smell blood in the water and step up efforts to keep JP Morgan from unwinding their massive and failed trade. On top of the already staggering losses already admitted to by Mr. Jamie Dimon himself, reports are surfacing that there may be another $100 billion in risky bond bets still sitting in the wings! Aside from JP Morgan’s woes, Joseph E. Floren, a lawyer at Morgan Lewis, the firm which has been defending Goldman Sachs against a litigation filed by Overstock.com, apparently filed something to which he attached a non redacted copy of one of the very documents that the law firm was trying to keep under court seal. The motion can be found here: Morgan Lewis Motion and you should take a good close look at pages 14-19. DeepCapture has the story, with links to stories at Bloomberg and the Economist here: DeepCapture Floren Story. It looks like the game may finally be up for “Da Boyz” and their market manipulation tactics. JP Morgan has finally hung themselves out to dry and the cries are already calling for Jamie Dimon to lose his job over the fiasco. The media outlets are all trying to play it off, coming to Mr. Dimon’s defense and saying “since when is it a crime to lose your own money?” in reference to JP Morgan using its own money for its failed trade. But the damage is becoming too large for it not to take down Jamie Dimon’s “Golden Boy” image. It is also becoming apparent that JP Morgan has been unloading its short positions in silver as they scramble to contain the damage. JP Morgan faces an angered Department of Justice and an even more enraged US Congress over their actions regarding this loss, and this may be the event, combined with the exposures in the Goldman Sachs suit, that finally puts a stop to the ability of these banks to manipulate markets, be they Stock Markets or the Precious Metals Market. “Da Boyz” appear to be losing their grip on the precious metals market, and Wednesday’s low tick of $26.58 in silver might be looked back on as a “gift” from them to the private investors they’ve apparently had no remorse over “taking to the cleaners” time and again. Europe’s woes appear to be approaching the meltdown stage. Greece is reporting massive withdrawals from its banks; Spain’s borrowing costs are escalating again, and Moody’s downgrade of 16 Spanish banks may trigger an exodus of cash from Spanish banks just as is happening in Greece. The distraction of facebook’s IPO is now past, though we are certain that it will be weeks before all the major media outlets get back to reporting on the world events that appear to be verging on triggering another major financial crisis. Watch the news and look for additional buying opportunities in the coming weeks as the EU struggles to come up with a solution to its massive debt woes. In the end, the answer to their woes may simply be to “print more money” and the US probably won’t be far behind in firing up the printing presses. In the current global environment, as Jim Rogers said in his CNBC piece on Thursday, it is best to “own real assets [such as gold and silver] because if the world economy gets better I’ll make money because of shortages and if things get worse they’ll print more money, which will drive up the value of hard assets.” Remember that precious metals should be viewed as a long-term investment and that the key to profitability through the ownership of physical precious metals is to actually own the physical products and to hold them for the long term. Never overextend your ability to maintain ownership of your precious metals over the long term.
Trading Department – Precious Metals International, Ltd.
© 2013, Precious Metals International Ltd.
www.wwpmc.com
The Week in Review – May 18th, 2012
Posted by Worldwide Precious Metals on Friday, May 18, 2012
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