Silver Monthly Recap for May, 2012: Silver Now in the Red for the Year

Former JP Morgan CIO stepped down after overseeing $2 billion in unanticipated trading losses.

Silver and gold were hammered in the month of May, but so were all three major stock indices. Silver lost 9.94%; gold was down 5.65%; and the S&P 500, Dow Jones Industrial Average, and Nasdaq lost 6.27%, 6.21%, and 7.19%, respectively. Where was the best place to put your money? Once again, it was in the U.S. dollar, shorting the euro. The FRN gained 6.96% against the euro for the month.

Week 1

The end of April fell on a Monday, so the first week of May consisted of four trading days. That week, only the dollar posted gains, as it improved by 1.12% against the euro for the week. The S&P 500 fell 2.06%, the Dow fell 1.33%, and the Nasdaq fell 2.96%. By comparison, gold held up decently, losing just 0.45%, while silver fell by 4.17%.

Silver lost ground each of the first four days of May. Starting on May 1, it posted consecutive losses of 1.35%, 0.84%, 0.52%, and 1.52%, falling under $30 on Friday, May 4. Meanwhile, the dollar improved against the euro all four days.

Stocks started off bullish, with all three major indices gaining on Tuesday. However, with the Nasdaq trailing the pack, it was clear to tape readers that the market was on less than solid ground. On Wednesday, the Nas was the only index to post a gain, tipping the market’s bearish hand, and on Thursday and Friday, stocks were down across the board.

Gold was a bit more evasive, posting gains on Tuesday and Friday, but losses on Wednesday and Thursday. This was largely in response to news out of Europe, as, on Monday – the final day of April – S&P cut the credit ratings of Spain’s big banks, and, stateside, the Chicago Factory Gauge fell to a 29-month low.

Week 2

Former JP Morgan CIO stepped down after overseeing $2 billion in unanticipated trading losses.

Week 2 saw a repeat of Week 1, with all three major stock indices, silver, and gold all losing ground, while the dollar continued to post gains against the euro. For the week, the S&P, Dow, and Nasdaq lost 1.15%, 1.67%, and 0.76%, respectively; while silver fell 4.41%, and gold fell 3.7%. The dollar, meanwhile, gained 1.29% against the hapless euro.

On Tuesday, it was announced that an IBD/TIPP survey found that Americans’ economic optimism had slipped. On Thursday, the big news that would continue to make headlines throughout the month, was that JP Morgan had unexpectedly lost $2 billion in ill-advised derivative trades.

The S&P and Nasdaq were each down three out of five trading days, while the Dow lost ground every day but Thursday. Gold and silver were down three of four days – the London Fix market was closed on Monday. The U.S. dollar gained against the euro every day but Thursday – the one day that the Dow posted gains.

Week 3

Stocks posted losses across-the-board, all five days, resulting in a 4.3% loss for the broad-market S&P 500, a 3.52% loss in the blue-chip Dow Jones Industrial Average, and an especially painful 5.28% loss by the Nasdaq. For its part, gold posted its only week-over-week gain of the month, gaining 0.41% and closing at $1,589.50 per ounce. Silver, however, could not match gold, despite posting gains the final two days of the week, and netted -0.35% for the week. The dollar lost ground against the euro on Friday, but still managed yet another 1%+ gain against the euro, strengthening by 1.17% against that multinational currency for the week.

On Monday, JP Morgan dumped its Chief Investment Office. Greece saw parties trying to form a government, to no avail. On Friday, Facebook finally made its stock-market debut, and fell flat. Many thought this IPO would spur investor optimism, but it did precisely the opposite.

Week 4

Stocks bounced back in the fourth week of May, making it the only week of the month’s five that saw any of the major indices posting a gain. The S&P 500 was up 1.74%, the Dow was up 0.69%, and the Nasdaq was up 2.11%. Silver lost 0.84%, and gold fell 1.26%. Meanwhile, the dollar continued its massive run against the euro, this time gaining more than 2% in just a single week – and that was on top of previous weekly gains of 1.12%, 1.29%, and 1.17% in May!

What’s even more amazing is that the stock market posted gains despite massive Facebook fall-out. That once-heralded stock suffered losses and embarrassment, as fraud was alleged to have taken place during its IPO “road show.” On the other hand, home sales were strong, and new data from Europe saw the economy falling faster than previously thought – this helped the dollar.

Week 5

Finally, the long, hard month of May was put to rest on Thursday, with the four-day week ending in losses for stocks and precious metals. After being closed on Monday for Memorial Day, stocks posted big gains on Tuesday, only to suffer even bigger losses on Wednesday, and more losses on Thursday. The S&P fell 0.57% for the three-day week; the Dow fell 0.49%; and the Nasdaq fell 0.36%.

The London Fix market was open on Monday, and it saw gold and silver post respective gains of 0.32% and 0.99%, as the dollar lost 0.2% against the euro. From there on out, though, it was bullish for the dollar and bearish for metals, as the greenback gained 1.16% for the week, and gold and silver lost 0.73% and 0.5%, respectively.

Conclusion

As gold and silver fall and the dollar strengthens, it only makes sense to buy more and more cheaper precious metals with more valuable dollars. The whole premise on which the dollar is posting gains – that the euro is in worse shape than the dollar – is itself flawed. Europe is in much better shape than the U.S., and when this reality finally hits home, both currencies may find their days to be numbered. When that happens, what’s going to happen to gold and silver? They’re going to gain back all they’ve lost over the past few months, and then some. Count on it.

For the year, now, stocks are still up: The S&P is up 4.19%, the Dow 1.44%, and the Nasdaq 8.53%. This spread of 1.44% to 8.53%, with the Dow on the low end, shows way too much optimism in U.S. growth – it’s honestly laughable. Meanwhile, gold is down 1.05% in 2012, and silver is down 0.28%. I’ll be very surprised if either precious metal is still in the red this time next month. We’ll see!