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-- Posted Monday, 17 March 2008 | Digg This Article | Source: GoldSeek.com

JPMorgan will buy Bear Stearns for $2 a share and this values Bear Stearns at $240 Million, a Tenth of its Value Last Week.  This is just roughly 1% of its value 16 days ago and reportedly less than half the value of Bear’s office building in New York.  So how could JPMorgan get such a good “deal’?  Bear’s “risk positions” total some $33 billion in what could be leveraged losses and JPMorgan takes control of those as well.  JPMorgan received some help from the fed who took on $30 billion in collateral from Bear in what is basically a loan from the fed to do the deal and bring liquidity and that is perhaps a loan only JPMorgan could get as the fed effectively acts to bail out the financial system and absorb those potential losses.  President Bush and Treasury Secretary Paulson signed off on the deal.  Lehman Brothers, Washington Mutual, and Citigroup saw notable losses today on fears that problems experienced at Bear Stearns are prevalent in other financial firms as well.  JPM closed up over 10%.

The fed cut its emergency lending rate from 3.5% to 3.25% last night and also extended loan availability to investment banks.  These emergency steps come ahead of the fed’s normally scheduled meeting tomorrow that is expected to cut the fed funds rate as much as 100 basis points from the current 3% level.  Others speculate the fed will only do 50 basis points in contrast to last week’s expectation of 75 basis points as last night’s steps may be the extra measures the fed thinks it needs to fix the system rather than resort to only large interest rate cuts.

The Metals:

Gold soared over 3% to as high as $1031.85 in early Asian trade before it dropped back near unchanged to as low as $999.22 by early trade in New York and then rallied back higher to about $1015 by late morning, but it then fell back off into the close and ended with a gain of just 0.35%. 

Silver rose to $21.34 in Asia before it dropped to $19.91 by about 9:30AM EST and then rebounded to about $20.70 by late morning, but it also fell back off into the close and ended with a loss of 1.9%.

The dramatic action came as some traders tried to get in to metals on a safety bid while others got out on margin calls that force them to liquidate profitable positions in order to cover for losses in other areas, but when all was said and done gold did end at a new all-time high and above $1,000 for the first time ever.

Euro gold fell to about €637 on euro strength, platinum lost $60 to $2010, and copper fell over 13 cents to about $3.71.

Gold and silver equities saw slight gains in morning trade before they fell to trade nearly 5% lower by mid-afternoon, but they then rallied back higher into the close and ended with only about 2% losses.

The Economy:

Also making economic news today was the National Association of Home Builders home builder sentiment survey which remained near the record low of 18 at 20 in March.

Tomorrow at 8:30AM EST brings PPI for February expected at 0.3%, Core PPI expected at 0.2%, Housing Starts for February expected at 995,000, and Building Permits expected at 1,020,000.  The highly anticipated FOMC Policy Statement comes at 2:15PM.

The Markets:

Charts Courtesy of http://finance.yahoo.com/

Oil neared $112 overnight, but it then tumbled as much as $6 as investors liquidated profitable positions to cover for losses in other areas.  Fears over a recession that would cut into demand also added to selling pressure.

The U.S. dollar index plummeted to a new all-time low of 70.70 soon after the Bear Stearns news hit Sunday night, but speculation over the size of tomorrow’s interest rate cut and rumors of coordinated central bank intervention to stem the dollar’s dramatic slide pared the index’s losses by the close and it ended just slightly lower.

Treasuries rose as the Dow, Nasdaq, and S&P mostly fell on worries over the stability of the financial system.  The Dow however closed slightly higher thanks to having JPM as one its 30 components.

Among the big names making news in the market today were JPMorgan and Bear Stearns, CME and Nymex, International Paper and Weyerhaeuser, Goldman Sachs, Wilber Ross and Option One, and the sovereign funds.

The Commentary:

“You cannot and will not preserve the purchasing power of a currency by expanding the monetary base at an 18% annualized rate. But that route has been taken and the sacrifice of the US Dollar will be one of the many victims of such a policy. So when mass consciousness accepts that their paper Dollars, Euros, etc are nothing more than fool’s gold, there will be a stampede back into history’s only true gold standard. 

We are at point where gold could become even more explosive. Short-term moves could amaze even some of the more bullish observers. Yet one should not discount a sizeable pullback either.  Volatility is explosive and overall risks to the market remain to the upside, especially when taking a mid-to-longer-term view.”- Peter Spina, www.goldforecaster.com

“The action of the Federal Reserve in declaring their lending on any collateral (which means no collateral in real value terms) to investment banks as well as commercial banks only institutionalizes what the Fed has been doing since all this started.

The most recent change in rates is an attempt to camouflage the enormous increase in the M3 that is inherent in the action to bailout an entire system now falling over.

I credit the Fed with making the situation obscure, but the problem is going to continue to accelerate. There is no practical solution.

Gold last night ran to $1033 then settled back to the key number of $1024 where it sat until Washington woke up at 6:30am. $1000 to $1050 is an area that will try unsuccessfully to restrain gold.

Gold is going to $1650.

When a commodity improves 665% the companies owning this commodity can only reflect that bull market, regardless of how hard any fund or funds try to stop it. Any such company with significant internal development will outperform.

Stay calm. Gold is heading to $1650 and I am almost certain that is much too conservative.”- Jim Sinclair, JSMineset.com

“April Gold finished up 3.1 at 1002.6, 14.9 off the high and 2.6 up from the low.

May Silver closed down 0.355 at 20.3. This was 0.23 up from the low and 0.45 off the high.

After seeing a massive range up thrust off the latest financial crisis, gold seemed to become fearful of a widespread deflationary contraction, as gold and a host of other physical commodity markets saw prices recoil from early strength. Perhaps seeing the US Dollar bounce prompted some gold traders to fear a coordinated intervention against the Dollar slide. Perhaps seeing the Fed provide increasingly more aggressive layers of liquidity to the marketplace downplayed anxiety, but in the end it would not seem like overall uncertainty levels were reduced. With silver, copper, platinum, energies and even grain prices coming under intense liquidation it is possible that some inflationary holders of gold were indeed fretting a tempering of inflation fears. In the end, the fear of too much slowing in the US seemed to at least temporarily trump the idea that gold was a flawless flight to quality instrument.

The silver market showed initial strength but it started to come off its early highs well ahead of the setback in the gold market. However, the silver market seemed to be tracking the weakness in copper and platinum early in the session, but renewed weakness in energy prices later in the session seemed to add to the long liquidation interest in the silver market. As in the gold market it would seem like a combination of economic slowing fears and perhaps a measure of deflationary selling served to pull the silver market away from its recent inflation/flight to quality mode.”- The Hightower Report, Futures Analysis and Forecasting

GATA Posts:

Dollar's nosedive stirs joint intervention jitters

James Turk: Counterparty risk is escalating

Murphy's Friday 'Midas' posted in the clear at GoldSeek

Ambrose Evans-Pritchard: Here comes the worldwide currency debasement

Fed ready to play pawnbroker to the Western world

Bear turns out to be worth just a fraction of its office building

Fed creates another loan fund for investment banks, cuts rate

Morgan gets Bear for $2 per share, with more Fed financing

Morgan races to acquire Bear before Asian markets open

Steve Randy Waldman: Repurchase agreements and covert nationalization of banks

Are America's banks being nationalized by the Fed?

Paulson defends Bear bailout, evades issue of more bailouts

Venezuela reported moving some oil contracts to euros

In the U.S., Big Brother monitors your every financial transaction

More rate cuts from Fed expected Tuesday

Ron Paul: What the price of gold is telling us

President convenes Plunge Protection Team on Monday

James Turk: The other reason to own gold

Fed, not Morgan Chase, bears risk of Bear Stearns bailout

The Statistics:

As of close of business: 3/14/2008

Global Gold ETF Holdings

[WGC Sponsored ETF’s]

Note: Change in Total Tonnes from yesterday’s data: StreetTRACKS added 0.92 tonnes, the ASX added 0.40 tonnes, and the JSE added 0.13 tonnes.

COMEX Gold Trust (IAU)

Note: No change in Total Tonnes from yesterday’s data.

Silver Trust (SLV)

Note: Change in Total Tonnes from yesterday’s data: 30.73 were added to the trust.

The Stocks:

Paramount’s (PZG) response to the SEC and assay results, Gold Fields’ (GFI) additional power and “flip-up” scenario, Eldorado’s (EGO) MOU with BHP over future iron ore sales, Kirkland’s (KGI.TO) third quarter results, ECU’s (ECU.TO) new vein discovery, and Silver Wheaton’s (SLW) agreement to purchase all of the silver produced by Mercator Minerals (ML.TO) were among the big stories in the gold and silver mining industry making headlines today.

WINNERS

LOSERS

Winners & Losers tracks NYSE and AMEX listed gold and silver mining stocks that trade over $1.

All of today's gold and silver stock news:

Journey and Grenville Gold Announce Amendment to the Joint Venture on Silveria Project - More
- March 17, 2008 | Item | E-mail

North American Gem Inc. Submits Samples from the Whiskey Gap Project - More
- March 17, 2008 | Item | E-mail

Oremex Update - More
- March 17, 2008 | Item | E-mail

Copper Reef Intersects 33.5 Feet of Near Solid Sulphides in MN-08-46 - More
- March 17, 2008 |