SP 500 and NDX Futures Daily Charts

Surprisingly sleepy day...

Gold Daily and Silver Weekly Charts - Greek Debt, FOMC, And Option Expiry

The miners were rallying with stocks and the metals today, as one might expect.

In the short term the markets will move on the Greek debt situation, the FOMC monetary policy decision tomorrow, and to some more individual extent the Russell 2000 rebalancing on Friday.

Gold looks to be on the verge of breaking out. Let's see if they can do it. A great deal will depend on macroeconomic and political events in the short term.

I have included a second gold chart which shows the chart formations should the breakout be confirmed after the July Comex options expiration, and the sturm und drang which follows for a few days afterward.

JP Morgan may wish to plug in a new 'cost of doing business' item in their budget for the commodities trading group.  And Ben may need to keep a little 'walking away' money at hand for his cronies.

FT
JPMorgan settles SEC charges for $153m
By Kara Scannell in New York
June 21 2011 19:01

JPMorgan Chase agreed to pay $153.6m to resolve US Securities and Exchange Commission civil fraud charges that it misled investors in a mortgage-related security it constructed for Magnetar, an Illinois hedge fund.

The SEC charged JP Morgan with failing to disclose to investors in the collateralised debt obligation, a security linked to mortgage-backed securities, the role played by Magnetar.

The hedge fund helped select mortgages included in the CDO, named Squared, and was betting against them. The SEC alleged that investors were told that an independent firm, GSC Capital, had selected the portfolio.

JPMorgan agreed to settle and reimburse investors in the CDO without admitting or denying wrong-doing. The settlement also requires JPMorgan to change how it reviews and approves offerings of certain mortgage securities.

SP 500 and NDX September Futures Daily Charts

A rally on very light volumes.

All eyes are on the Greek referendum after the bell, and on the FOMC decision tomorrow which is likely to provide some hint on the Fed's stance on continuing monetary stimulus.

Adobe turned in mixed results after the bell.

Net Asset Value of Certain Precious Metal Trusts and Funds - Special Friends of the Cafe

A nice move in the metals today, and a bit of a catch up move from the related products like mining companies.

The Greek vote of confidence on the government should be announced after the bell, around midnight Greece time, and 5 PM EDT. This could move the markets ahead of the FOMC announcement tomorrow.

A Bloomberg poll of economists suggests that Bernanke will not end his stimulus program at the end of June, but perhaps change the appearance of it.

A special thank you to the many who send in helpful links and suggestions, often on a daily basis:  Bill and Andrew, Malcolm and Michael, Dominique, Ursel,  Craig, Jim, Janet, Don, Don Gerardo,  Erik,  Steve,  Srinath,  Shino, Chris,  Rodd, Wis, Bob, Mikel, Blondie, Dave, Thomas, Tim, Joel, Richard,  Lenny, Gary, Rob, Normand, Pierre, Stacy, DaveK, Peter, Max, Philip, Michel,  Pandu, Prem, Bryan,  Toby, Gwein, Nick, Larry, Petra, Harvey, Adrian, Warren, Francesco, Gonzo,  Kohei, Kuzo, Bruce, Sookie's CouponGuy, Sean, James, Jimmy, Toby, Scott, Philippe, Gregory, Pete, Hugo,  Ilene, and all the rest. I do not generally give hat tips, but these patrons stand out almost daily.

And of course, props to my unofficial editor Larry S. who helps tremendously by catching even the typos, awkward phrasing, and even the few malapropisms that 'escape my eye.' Sometimes I am on the run, and well, you know how that goes.  As they say in central Europe, 'old age is no joke.'  And sometimes this effort makes me feel old beyond my 59 years. lol.

Gold Daily and Silver Weekly Charts

Gold and silver were 'stepped on' several times during the day, as the usual antics that accompany a major FOMC meeting have already begun. Since the Fed is expected to say something about the son of QE2, we should expect the powers that be to step on gold rallies to help buttress confidence in paper.

There was a minor to-do on the weekend as the long expected changes in high leverage off exchange trading began to become visible in the markets, with a couple of dealers curtailing paper trading in the metals. I view this as of little consequence, and perhaps bullish because it is the paper market that is used to manipulate the price of the metals lower, although not so much effect because the ruling is only for retail traders, and not the big commercials.

SP 500 and NDX Futures Daily Charts

The news events this week will be any developments in the Greek sovereign debt situation, the FOMC decision on Wednesday (two day meeting) that may very well give the markets some insights into the nature of what will follow QE2, and of course the Russell 2000 rebalancing on Friday which may drive specific stocks as they move on and off the list.

Today was one of the lightest stock volume days of the year, so any moves may have an exaggerated affect on short term prices.

Silvercorp Announces Share Buyback Program

I thought this press release from a silver mining company was interesting relative to the divergence between the miners and the metals which was featured last week.

By means of disclosure I have a very small trading position in this company, and as a caution I have to advise that it is highly volatile. As such I do not possess a profound knowledge of their operations. I do not like to mention individual companies at all, but it is difficult to reference a share buyback otherwise.

I tend to trade actively in the miners, and hold bullion, so I may not have this position for long even at the end of the week. This is in no way any endorsement of this company or any suggestion about its future performance.

I would expect other companies with the appropriate cash flows and positions to employ this type of relief from the short selling that has been plaguing them, as well as the headwinds of the recent stock market decline. But the divergence between miners and metals predates the stock market correction.

This might also be a period of acquisition and consolidation as we had seen in the Canadian juniors as oil made its moves higher.

The countervailing trend of course is the stock market weakness which weighs on all equities to varying degrees. A stock market 'crash' would hit the miners rather badly.

Generally I prefer to own bullion for the long term, rather than taking a leveraged play in the miners which are unsuitable for investment purposes for the average portfolio due to the risks which must be taken into account.

If you speculate with leverage, the odds are very high that you will lose money. I don't think I can state it more plainly than that.

SILVERCORP ANNOUNCES SHARE REPURCHASE PROGRAM

VANCOUVER, British Columbia – June 17, 2011 – Silvercorp Metals Inc. ("Silvercorp" or the "Company") intends to commence a Normal Course Issuer Bid to acquire up to 10 million common shares from June 29, 2011 to June 28, 2012, representing 5.7% of the Company's 175,047,941 common shares currently issued and outstanding. The Company is taking this action because it believes that prevailing market conditions have resulted in Silvercorp's shares being undervalued relative to the immediate and long term value of Silvercorp's portfolio of producing and development properties in China and Canada.

Purchases will be made at the discretion of the Directors at prevailing market prices, through the facilities of the TSX and/or the New York Stock Exchange (NYSE) in compliance with regulatory requirements. There can be no assurance as to the precise number of shares that will be repurchased under the share repurchase program. Silvercorp may discontinue its purchases at any time, subject to compliance with applicable regulatory requirements. The Company intends to hold all shares acquired under the issuer bid for cancellation. The Normal Course Issuer Bid is subject to regulatory approval.

Directors and senior officers of the Company are not aware of any previously undisclosed material changes or plans or proposals for material changes in the affairs of the Company, nor do any of them have the present intention to sell shares of the Company during the Normal Course Issuer Bid.

US Seeks to Curtail OTC Highly Leveraged Retail Trading in Paper Commodities and Currencies

As part of the reform of derivatives, Dodd-Frank is seeking to prohibit Over the Counter (meaning non-exchange) trading of commodities at leverage of greater than 10:1.

The off exchange traders, particularly those trading in currencies, had expanded their markets into various commodities, offering non-product backed paper trading at very high rates of leverage.

The Congress and CFTC started taking a dim view of this sort of activity, and has tentative prohibited it as of July 15.

This does not curtail any on-exchange trading, such as the CME, or any ETFs, or any other product with a leverage of less than 10:1 or actually involving substantial physical backing or intended delivery of product within 28 days.

I have not quite gotten the time to assess the impact if any this might have on retail trading in forex itself. I have included a few forex related documents below. My initial take was that this is targeted at retail currency speculation, and gold and oil fall into it as a secondary effect. I have relatives visiting this weekend to celebrate my wife's recovery from her recent illness so I have not had time to inquire further.

This is my reading of the situation, subject to additional information. I am trying to obtain the forex type contracts detail to understand customer rights, if any, in obtaining delivery of spot commodities.

There *could* be something to this if there is in fact a means to obtain delivery in some reasonable way. But otherwise it looks like a crackdown on speculation by smaller specs in off exchange products and push to move them to exchanges for all but the larger 'exempt few' who enjoy privileged access to almost everything.

I am a little surprised that people were not screaming about 'currency controls' which might be a little more to the point that talk about prohibiting the trading in gold, oil, and silver.

For the most part it seems like much ado about nothing with regard to gold and silver and oil etc., but its good for clicks, and it helps to cheer up those sitting in depreciating paper on the sidelines who have missed the commodity bull markets.

Gold money was not private property in the 1930's, it was an instrument of the state, and subject to the state's disposal. That is not the case now.

Forex.com reportedly sent out this notice to customers on Friday.

Date: Fri, Jun 17, 2011 at 6:11 PM
Subject: Important Account Notice Re: Metals Trading

Important Account Notice Re: Metals Trading

We wanted to make you aware of some upcoming changes to FOREX.com’s product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.

In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.

We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.

We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.

Sincerely,
The Team at FOREX.com

Here is one of the relevant products offered by Forex.com:

How Leverage for Spot Gold Works

Leverage for spot gold trading is set at 100:1. This means that for every $1 you have in your account balance, you have $100 in buying and selling power for gold trading. As a result, leverage increase a client's buying and selling power and enables clients to participate in a market that may otherwise be cost prohibitive. Keep in mind that increasing leverage increases risk.

This is the long and short of it. If you want to trade paper, there are still plenty of ways to do it. But you might not be able to do it in the US unless you are using an exchange with structured counter party risk and contracts, and regulated leverage.

Here are some related documents, that interestingly enough deal with the Forex aspects of this ruling.

CFTC: Final Retail Foreign Exchange Rules

Hedge Funds Trading FX May Be Caught Out By Dodd-Frank

Dodd-Frank Dispatch: Retail Forex Transactions Rule for National Banks

Time Running Out On Retail Currency Business

Obama Threatens Forex; Says Goodbye to OTC Gold Trading

Gold Daily and Silver Weekly Charts

Gold and silver bullion are looking resilient here.

The miners continue to underperform rather badly. See the intraday commentary for a graph of this, and some speculation on why it is happening.

I think this is why some metal bulls have started to shift sector allocation from bullion to miners, but it brings a different set of risks with it.

SP 500 and NDX Futures Daily Charts - VIX Remains Elevated On Sovereign Default and QE3

See the intraday commentary for a size up of the market positioning and next week's events that may move it.

Moody's Warns May Cut Italy Credit Rating (On Friday Afternoon in Option Expiration)

This announcement took the wind out of the equity market's sails and added a little more edge to the upcoming Sunday evening trade.

Watch the US-EUR and EUR-CHF crosses.

Even better if you are able watch the bond spreads since they are leading the currency moves these days.

The remainder of today's trade is a bit of a throw away because of the option expiration, but next week on Wednesday the Fed should announce some decision relative to son of QE2, and on Friday the Russell is rebalanced.

Plenty of volatility coming for the traders, and headaches for investors and producers seeking a stable income. That is the US casino economy.

Moody's Press Release

Frankfurt am Main, June 17, 2011 — Moody’s Investors Service has today placed Italy’s Aa2 local and foreign currency government bond ratings on review for possible downgrade, while affirming its short-term ratings at Prime-1.

The main drivers that prompted the rating review are:

(1) Economic growth challenges due to macroeconomic structural weaknesses and a likely rise in interest rates over time;

(2) Implementation risks surrounding the fiscal consolidation plans that are required to reduce Italy’s stock of debt and keep it at affordable levels; and

(3) Risks posed by changing funding conditions for European sovereigns with high levels of debt.

Moody’s review will evaluate the weight of these growing risks in light of the country’s high rating but also relative to some credit-strengthening trends that have been observed in recent years and are expected over the coming years, such as improved fiscal governance, lower budget deficits and a modest economic recovery.

RATIONALE FOR REVIEW

First, the Italian economy faces growth challenges in an environment characterized by long-term structural impediments to growth and potentially rising interest rates. Structural economic weaknesses — mainly low productivity and important labour and product market rigidities — have been a major impediment to growth in the last decade and continue to hinder the economy’s recovery from the severe recession it experienced in 2009. Italy has so far only recovered a fraction of the nearly seven percentage points in GDP that it lost during the global crisis, despite low interest rates, which are likely to rise in the medium term. Growth prospects for the Italian economy in the coming years will be a crucial factor that will determine the government’s revenues and the achievement of fiscal consolidation targets.

Second, there are implementation risks to the fiscal consolidation plans that are required to reduce Italy’s stock of public debt to more affordable levels. Against a backdrop of rising interest rates and weak economic growth, the government may find it difficult to generate the primary surpluses that are needed to place the public debt-to-GDP ratio and the interest burden on a solid downward trend. The adoption of additional conservative fiscal policies may prove more difficult in the near future because the current government’s electoral support is weakening, with the government facing challenges in gaining public approval for its policies. For example, the government’s recent energy and water supply proposals were rejected by popular vote.

Third, the fragile market sentiment that continues to surround European sovereigns with high levels of debt poses additional risks for Italy. The continued stability of market demand for Italy’s debt is uncertain at current yields. Although future policy actions within the euro area could reduce investors’ concerns and stabilize funding costs, the opposite is also possible. In any event, going forward, investors appear likely to differentiate more among euro area sovereign borrowers than they did prior to the financial crisis, to the disadvantage of euro area countries with higher-than-average debt burdens, like Italy.