The Week in Review – December 16th, 2011
December 16, 2011
What a week! This week saw a price dip in precious metals that may very well be the last great buying opportunity as we move into 2012. The fundamentals that have been driving precious metals higher remain unchanged. It is important to keep that fact forefront in your mind as the media floods the airwaves with calls for precious metals to drop lower, but the media spin machine is stumbling as it tries to find people to help talk the prices down. Many of the analysts they bring on to and try to bait into being negative are saying instead that they view this as a buying opportunity brought about by external factors and that they expect the market to continue to power higher in 2012.
New US claims for unemployment dropped to a 3 and a half year low of 366,000 (seasonally adjusted) last week according to a report released on Thursday by the Labor Department. Many economists polled by Reuters had predicted claims would rise to 390,000 and they were thus surprised by the drop. We remain steadfast in our belief, just as we did this time last year, that any employment numbers between now and roughly the second week of January are not reflecting the accurate state of the job market due to temporary holiday hiring.
On Thursday, the US Congress reached a tentative deal to fund multiple government agencies including the Defense Department, Homeland Security and the Environmental Protection Agency, through September 30. The deal should prevent a shutdown of these agencies since their current funding is due to expire at midnight tonight. Work continues on a compromise for the payroll tax cut that is set to expire on January 1st, 2012. President Obama said Thursday “Congress should not and cannot go on vacation before they have made sure that working families aren’t seeing their taxes go up by $1,000 and those who are out there looking for work don’t see their unemployment insurance expire.”
There is a seasonal slowdown taking place in foreclosures in the housing market which may be the proverbial calm before the storm. According to RealtyTrac, a site which tracks foreclosure sales, the US real estate market is about to be slammed by another wave of bank repossessions as banks complete their re-submission of documents and courts begin hearing cases involving the over 4 million delinquent loans that are still in the system. Fannie Mae has graciously said they will not evict anyone until after the New Year but a spokeswoman for the troubled mortgage giant said the foreclosure process itself will continue through the holiday season so as “not to slow the system down more than it already is.”
In further housing industry news, the Securities and Exchange Commission announced on Friday that it was suing 6 former top executives at both Fannie Mae and Freddie Mac for fraud. The SEC maintains that the executives, three from Fannie Mae and three from Freddie Mac, misled the government and taxpayers about risky subprime mortgages that the two entities held during the housing bust. SEC enforcement director Robert Khuzami said “Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was. These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk.”
Oil prices tumbled into the low $90 a barrel range on news that OPEC was raising their output levels despite evidence that economic contraction may mean less demand.
7. In Europe, the specter of a ratings downgrade, hinted at by Standard & Poor’s announcement last week and further supported by comments out of Fitch ratings agency this week, has set France and the UK to bickering with each other over which country has the worst economy. In France, the Bank of France Governor Christian Noyer said “They [S&P] should begin by downgrading the United Kingdom which has bigger deficits, more debt, higher inflation, less growth than us and where credit is shrinking.” Philippe Waechter, Head of Economic Research at Natixis Asset Management in France said “We just want to keep it because we feel we are still a very strong economic nation and we don’t have many more problems than the English. We want to keep ours if the UK keeps theirs.”
The euro nosedived against the dollar this week as the sovereign debt situation in the Eurozone continues to drag on with no real near term solution in sight. The yen declined against the dollar for most of the week as well.
Friday to Friday Close
|December 9th||December 16th||Net Change|
|Gold||$1713.00||$1587.00||(126.00) – 7.36%|
|Silver||$32.17||$29.50||(2.67) – 8.30%|
|Platinum||$1515.00||$1415.00||(100.00) – 6.60%|
|Palladium||$685.00||$622.00||(63.00) – 9.20%|
|Dow Jones||12184.26||11851.33*||(332.93) – 2.73%|
Previous Year Comparisons
|December 17th, 2010||December 16th, 2011||Net Change|
|Gold||$1374.00||$1587.00||213.00 + 15.50%|
|Silver||$29.10||$29.50||0.40 + 1.37%|
|Platinum||$1705.00||$1415.00||(290.00) – 17.01%|
|Palladium||$740.00||$622.00||(118.00) – 15.95%|
|Dow Jones||11491.91||11851.33*||359.42 + 3.13%|
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
Volatility should be expected to continue. It is important to keep several factors in mind as we approach year end. 1. The CFTC is supposed to begin enforcing their new position limits in January, so this is the last window of opportunity for JP Morgan et al to manipulate prices downward in an effort to bring their short positions in line with the new limits; 2. As the Eurozone crisis escalates, money has been flooding out of the Eurozone into US Bonds which has had the result of temporarily driving the US dollar higher; 3. Funds and individual investors both will be selling losing positions for end of year tax purposes. They may also be selling their big winners to lock in gains for the year and pad their quarterly reports. Keep in mind the fundamentals that continue to suggest that gold and silver should both be powering higher as the media spins this latest downward price manipulation in a negative light. Credit rating agency Fitch placed multiple Eurozone countries on watch for a downgrade, saying that after the EU summit last week, it had concluded that “a ‘comprehensive solution’ to the Eurozone crisis is technically and politically beyond reach. Of particular concern is the absence of a credible financial backstop. In Fitch’s opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States.” Peter Grandich, editor of The Grandich Letter, backed up his firm belief that the gold market is headed higher by offering a wager to 3 prominent analysts who have been negative of late. Mr. Grandich offered a $1 million wager with Dennis Gartman of The Gartman Letter, CPM Group’s Jeff Christian and Kitco Metals Jon Nadler that gold would see $2,000 before it saw $1,000. His offer is good until midnight on December 31 and Mr. Grandich has arranged for a New Jersey law firm to hold the funds in trust. Mr. Nadler responded to the wager by saying “Peter Grandich is not worthy of my time, or of my attention. He is a desperate man, desperately seeking attention.” It is noteworthy that Mr. Nadler, whose opinion of Mr. Grandich’s predictions seems to be so low, did not take the bet. Mr. Christian responded with “We [CPM Group] have thus been saying that gold possibly could touch $2,000 before it touches $1,000 so taking Grandich’s bet would be ‘betting against my own views.’” Mr. Gartman gave the kindest response to Mr. Grandich’s bet. Mr. Gartman, who the media has trotted out as bearish on gold since he sold his personal positions last week, sent a personal note to Mr. Grandich which he concluded with “This then should hardly be construed as being bearish; I have simply chosen to stand aside, and that my friend is why I’ll not take up your bet. I simply cannot see gold trading to $1000/ounce…” With all of these noted analysts saying they expect precious metals to continue their climb, the recent price dip may be offering the last great buying opportunity before events in the Eurozone and the US cause prices to explode higher. John Hathaway, manager of the Tocqueville Gold Fund, told King World News in an interview this week “Basically, we have to take our cue from gold when looking at silver. The things that are going to drive gold are going to drive silver, but as always, silver will get a bigger percentage move. Don’t lose sight of the long-term rationale for investing in precious metals and that is monetary debasement. I see nothing to suggest anything has changed. I listened to [Jim] Sinclair’s interview and he was saying there is no way that austerity is going to last as something that is politically acceptable. I couldn’t agree more with him.” Mr. Hathaway continued in his interview with “The bigger picture is gold continues to be in a long-term bull market. This correction is well within the confines of what you can tolerate to say gold is still in a bull market. Frankly, this is exactly what we need to set up a base for going to new highs. I think we are going to be done with this by the end of the year.” One final important statement from Mr. Hathaway’s interview with KWN is “Therefore you can’t time it if you are dispirited in gold or the mining shares. You just can’t get in ahead of that moment when everything goes ballistic. You have to be in already and endure the pain that we are all feeling.” In other words, by maintaining ownership of your precious metals in this market, by not overextending your ability to stay in it through temporary price corrections, when the trigger is pulled that sends prices ballistic, you’re already on board and strapped in for the ride of your life. Remember that precious metals should be viewed as a long-term investment and that 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.
© 2013, Precious Metals International Ltd.
The Week in Review – December 16th, 2011
Posted by Worldwide Precious Metals on Friday, December 16, 2011
Fill Prices may vary based on actual time orders are placed and confirmed. All orders are Final and Subject to Terms and Conditions of the Customer's Account Agreement with Precious Metals International, Ltd. All Fabricated Products for Home Delivery are quoted, basis specific product, quantity and delivery destination at Time Orders are placed and confirmed. Retail Dealer Prices may vary.