JPMorgan's Whale of a Trading Loss Tale

After briefly poking above the $1,600 mark during the trading day on Thursday, gold prices resumed their march towards lower value ground and were once again seen touching the $1,585 level by the late evening hour in New York. With gold prices orbiting near 17-week lows there are naturally quite a number of questions surrounding the yellow metal’s near and medium-term fate and a couple of institutional firms (Barclays Capital sees an average of $1,716 gold this year) have cautiously reduced their forecast for bullion with regard to those timeframes. In technical terms, there is little in the way of chart support for gold until the $1,527 level is touched (and is being hoped for to hold up) and such an excursion could take place in short order. 

However, with daily sentiment indices hovering at lows of around only 10% bulls, there is a decent chance that a counter-trend pop could be witnessed over coming sessions and that some repair work could be undertaken. Mind you, the scope of such repairs at this point has become almost a "wholesale remodel." At any rate, the weekly Bloomberg News survey of analysts indicates that they are now the least bullish they have been in five weeks’ time. Chart-wise, the gold bulls cannot begin to snort and trot until and unless price tags reach well above $1,650 on a closing basis for a couple of sessions. 

With the US dollar around 80.30 on the index, with crude oil under $96 per barrel and with the euro not overcoming the $1.30 critical mark despite some easing in Europe-centric anxieties, such a feat might have to wait for some time. In fact the euro dipped to three-and-a-half month lows overnight. Yesterday’s (small) dip in U.S. jobless claims filings did not play into the gold bulls’ hands either. Overnight and this morning, the situation was no brighter as despite the lack of a sizeable advance in the dollar gold prices slipped to lows near $1,570 while silver fell to under the $28.50 mark in electronic trading prior to the market’s opening in New York. Platinum touched lows at $1,455 while palladium actually dipped under the $600 level for a brief time. 

In the “lessons we could all learn from” department, intrepid Kitco News reporter Daniela Cambone interviewed Mr. Kevin O’ Leary (who, for Canadians, needs no introduction) and came away with quite the harvest of sage and level-headed observation on gold, gold shares, and putting one’s money into either. Take it from someone who’s worth quite some numbers: “Gold is a stabilizer, it is an insurance policy.” As well, “I have owned gold for decades and I simply have 5% weighting.” 

Finally, Mr. O’Leary cautioned that: “When everyone is saying you gotta own it [gold], you should be selling it because when it corrects it doesn’t touch the sides [of the chute] on the way down.” Mr. O’Leary is likely to credit his ability to have amassed a fortune to discipline, and to not ever having owned more than 20% in any sector. We will not repeat what he noted about gold miners right here, right now. The clip and the article in the above link are all you need. Let’s just call it the “Cold, Hard Truth.” Mr. O’Leary sure does. Bravo. There goes the prize for the most valuable (in every sense of the word) interview of the year. 

Meanwhile, no surprise, in the wake of this week’s epic wash-out in the metals; a plethora of still-bullish commentaries have been hastily penned over the past several days, with most of them, curiously, alluding to the very same events in Europe that have driven precious metals to their current level as being utterly bullish for them. Why, even allegedly evil-minded, market-manipulating firm Goldman Sachs came out with a reaffirmation of its faith that gold prices will once again touch…$1,840 an ounce (in the next six months, to boot). Not perhaps what dyed-in-the-alloy gold bugs wanted to really hear, but…good enough for now. 

In any case, the faint (but soon to be beeping loudly about this) market radar last night picked up a bit of wild (to the tune of $2 billion) news. Evidently, the other putatively  “sinister’ metals market suppressor – JPMorgan incurred a trading loss of such a whopping magnitude owing to the “skills” of a rogue trader codenamed the “London Whale.” Now, we know that many of you reading these lines are hoping to learn that this cetacean lost shovelfuls of money on some kind of gold or silver positions gone sour, but, alas, that is not the case. 

In fact, the JPM loss put an additional price dent into risk assets worldwide this morning. One Mr. Bruno Iksil simply sold a whaling boat load-full of CDSs to assorted hedge funds. That move came back to bite the firm more severely than Moby Dick ever bit Captain Ahab. The firm did not lose a leg perhaps, but it did shed more than 7% in its stock value after-hours. Ahoy, losses. 

Something else that went quietly under the market’s radar was the news that the US government (yes, that ‘gubmint’) posted its first monthly budget…surplus (!) since late 2008 this April. Uncle Sam was in the black to the tune of $59 billion last month, go figure. That’s one for Ripley’s “what are the odds of that?” kind of questions, but it is a fact. It is the first such surfeit for the Obama administration and it is likely to not “go over” very well in the Romney election camp, or on Fox News for that matter, even if it is not (yet) a game-changer overall. 

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