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The Week in Review – August 27th, 2010

August 27, 2010

The DOW spent the week wavering back and forth between being positive and negative for the year as precious metals climbed higher. Congratulations are in order once again for those of you who have been taking advantage of price dips to add more metals to your portfolio!

A gloomy picture has been emerging over the last several weeks about the true state of the economy. This “gloom and doom” sentiment seems to have been kicked off by the Fed’s announcement earlier this month that they were ready to re-start their Quantitative Easing programs in an effort to jump start the flagging recovery. Nouriel Roubini declared on Thursday that the chance of a “double dip” recession was now over 40%. Some analysts place their estimates of a double dip occurring at closer to 50%.

In a week with abysmal news and a volatile market, the bright spot was that new claims for unemployment actually fell more than expected. The four week average of new claims, however, which is supposed to be a better measure of labor market trends, rose to its highest since late November.

We stated in our August 20 memo that California would be running out of cash again by October and may have to begin writing IOU’s to cover obligations again. It appears that it will be much sooner than October when that scenario occurs. The embattled state has already begun delaying payments to school districts and counties and may actually be issuing IOU’s by the end of this month.

Durable goods orders in the US had their largest decline in 1 and ½ years in July according to a Commerce Department report on Wednesday. The decline, combined with a downward revision in the US Gross Domestic Product for the second quarter, reinforced the view that the recovery in the US is stalling.

Consumer sentiment went down in late August, but was still better than late July’s reading according to Thomson Reuters/University of Michigan’s Surveys of Consumers. This week’s round of bad news may be a drag on consumer sentiment the next time around however.

In a much anticipated and much overblown speech on Friday, Ben Bernanke said essentially the same thing he’s been saying for 2 weeks; the recovery has softened more than expected and “The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.” This was essentially just a restatement of the Fed policy that he’d previously described before Congress and in other words, means more Quantitative Easing is waiting in the wings.

The dollar plummeted against the yen this week, hitting its lowest levels against that currency since 1995. The euro declined against the dollar this week apparently on news that Standard & Poor’s was downgrading Ireland’s credit rating Wednesday. In a surprise move on Friday Britain announced that its economy grew faster than originally thought in the second quarter, hitting a nine year high. The news out of Europe did not seem to help the euro move higher though.

New and existing home sales set records this week, and they weren’t good ones. Existing home sales were down over 27% in July, which was almost twice what was expected and a 15 year low. New home sales were down over 12%, the slowest pace on record. There is now officially a 12.5 month supply of homes on the market. The bright spot was that the number of people whose mortgages were “underwater”, where they owe more than the home is worth, declined. This good news was tempered by the fact that the decline appears to be due to the sheer number of foreclosures which have taken those “underwater” properties out of the statistics.

Crude oil spent most of the week moving down as inventory numbers and a decline in durable goods orders helped push the price down. Thursday the price regained its mid-$70 a barrel range again however and appeared ready to finish out the week there on Friday.

Friday to Friday Close

Here are your Short Term Support and Resistance Levels for the upcoming week.

Volatility should be expected to continue. We are close to just two months away from November elections in the US. Sagging approval ratings may lead the Obama administration and the Democratic Party to begin to make panicked and misguided attempts to try to boost the economy in the hopes that they can salvage seats in Congress come November. Previous stimulus attempts have proved ineffective thus far at reviving the flagging economy and the odds are good that any attempt to rapidly pass emergency stimulus measures would be disastrous for the economy. Hopefully Congress realizes this and will put the economy first and foremost ahead of their political careers. Economic growth in the US is slowing, and the specter of Sovereign debt is beginning to rear its head again in the Eurozone. The housing market in the US, long thought to be the key to kick starting the recovery, is performing abysmally and there does not appear to be any reprieve in sight. As sentiment over the state of the global economy declines, precious metals are becoming more attractive to investors as a hedge against the rising fear and uncertainty. As the above ground supply dwindles, prices may skyrocket from their current levels. September is fast approaching and that has historically been a horrible time period for the stock markets. Savvy investors will be taking advantage of any price dips in precious metals to add to or even to start, their precious metals portfolios. Remember, 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 over-extend your ability to maintain ownership of your product over the long term.

Trading Department – Precious Metals International, Ltd.

This is not a solicitation to purchase or sell.

© 2012, Precious Metals International Ltd.
www.wwpmc.com

The Week in Review – August 27th, 2010
Posted by Worldwide Precious Metals on Friday, August 27, 2010

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