Platinum prolonged its recent bull run, shooting as high as $1245 in the first hour after noon in New York, then eased slightly for the rest of the day, ending at $1237/oz., up $50. Overnight, platinum is trending lower.

Silver burst higher in Hong Kong, trailed off in early London trading, then really caught fire at the New York open, going ballistic and adding over 40 cents by the second hour on the Comex, then seesawed through the rest of the day to close at $12.74/oz., up 41 cents. Overnight, silver has drifted lower. (Click here for charts)

Traders returned from the long weekend in an obvious buying mood with regard to the precious metals, as all of them posted especially strong days, with platinum leading the way.

Gold rose as the usual suspects were mixed, with equities little changed, oil dropping in price, but the dollar plunging vs. the euro.

“There’s some positioning ahead of financial results,” said Matt Zeman, of LaSalle Futures Group in Chicago, in anticipation of soon-to-be-released earnings reports from the sector. “Financials led us down this path, and they’re going to be the sector that leads us out. You might see the flight-to- quality buying in Treasuries and gold if earnings don’t meet expectations.”

This week will see first-quarter results from many financial companies, including Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), and JPMorgan Chase (NYSE:JPM), as well as General Electric (NYSE:GE) and more than 30 companies in the S&P 500 Index.

Technicians weighed in with their opinions, also, saying that gold’s gains accelerated after the price failed to close below the 200-day moving average last week. “We’re seeing some technical strength,” Zeman said. “There’s short covering now that the price held the 200-day.”

“In the past, a close below the 200-day moving average has prompted liquidation from technically driven traders,” wrote John Reade, of UBS AG (NYSE:UBS) in London. “Until this has been seen or until gold has bounced sharply from current levels, it is too soon to call an end to this correction.”

Source: Precious Metals Come Roaring Out Of Holiday Weekend

The causes are twofold: Monetary policy – interest rates were too low for too long – and bad regulation. The like of which spawned the ‘shadow banking’ system of offshore, off balance sheet and off radar financial activities about which we have learned so much in the past eight months.

As to drivers, there is one in Munchau’s eyes – real estate.

The distinction between the causes and driver is that one tells us how we got here and the driver tells us how long it will last. Okay, so dear reader, I think you can see where this is going. Munchau is a super bear on UK, US and Spanish property. No doubt Ireland too though not specifically mentioned. He sees a 30-50% peak to trough fall for these markets on the basis of various supporting charts based on real house prices, price/rent, price to mortgage and price to income ratios.

He also points to slowing demand factors – the £30,000 non-dom fee and slowing bonuses. On the supply side we see mortgage finance disappearing faster than you can say: “Have you heard about our latest 2-year fixed offer?”

According to Moneyfacts there are nigh on 1,000 less mortgage offerings in the marketplace today than there were one week okay. It should be noted that still leaves near 5,000 deals out there but we see clearly which way the wind is blowing. And the latest Bank of England report does nothing to dispel the view. The credit squeeze is set to intensify over the coming three months it says. And as the Guardian notes more lenders are demanding a 10% deposit down. That’s an average £25,000 in London which is a tall order when savings rates are close to nil. Little wonder HBoS now see a 30% fall in housing transactions this year though one factor not mentioned in his analysis is employment levels. The UK’s is at a record level, though with 11,000 City jobs likely to go according to the CBI, this is unlikely to last.

Another speaker at the event, Marco Annunziata, chief economist at Unicredit, sees a mild recession for the US but that there will be sluggish growth coming out the other side. He foresees another 50bps coming off US interest rates taking it down to 1.75%. The crisis won’t be over until the housing market stabilises said Alan Greenspan. A point echoed by Annunziata. That inflexion point – when the US housing market actually stabilises – could be an interesting one for the financial markets generally and the dollar. Interesting to note among the speakers and audience today, there was a change of sentiment towards the dollar from net bearish to cautiously bullish. Annunziata notes the narrowing of the US current account working in the greenbacks favour and forecasts “stabilisation” in the US in the second half so adding to this editor’s sense that 2008 will prove eventually to be, to borrow and mangle one of the oldest footballing clichés: a year of two halves.

Not a stance that is shared by the pound where both the housing market and the precarious state of the consumer make it ripe for a fall. With cheap re-mortgage deals drying up, consumers binged on credit card debt and personal loans in February reported the London Evening Standard last night. Behaviour akin to an alcoholic turning to meths when the whisky bottle’s been drained.

And what of the Eurozone? William Rees-Mogg notes two Europe’s in his commentary below. A view at least partially reflected by speakers this morning. You’ve got Germany surprising on the upside and doing just fine thanks notes Annunziata. France is “so so” and the likes of Spain and Italy are heading for big trouble. The net result is the Eurozone slowdown will continue and may intensify and the hawks at the European Central Bank led by Jean-Claude Trichet may cut rates later in the year. Presently, there’s no chance given the EU inflation rate is 3.5% and any such talk would give Trichet and co. palpitations. Such a move implies a euro weakening against the dollar with Unicredit forecasting €1.40 by year end.

Going forward the financial sector will shrink relative to the size of the economy reckons Munchau and what’s left will be “more intrusively” regulated. Hedge funds and private equity houses will be part of the shrinkage as the money migrates to the major names and marginal players go out of business. As to real estate and equities. Expect a long bear market.

Regards,

Rob Mackrill
The Daily Reckoning