PPMI Week In Review

The Week in Review Via PMI

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.”

10. 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%

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.

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