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The Week in Review – December 30th, 2011

December 30, 2011

PMI would like to wish you a Happy New Year!  The holiday on Monday makes for a long weekend and a shortened trading week next week but as was proved during this week, a shortened trading period can often lead to thinner markets and increased volatility.

This week, “Da Boyz” took advantage of the thinly traded market to smash down prices one final time in 2011.  The media provided the smoke screen cover by saying that “tax loss selling” was taking place which was causing the price drop, but by the end of the week even media pundits were saying “this action doesn’t make sense”.  The talking heads on TV spent the week trying to convince everyone that the  decade long Bull Market in precious metals had finally come to an end but by Thursday, the “bearish” analysts they were trotting out all began saying they were going to start buying again and that they expected prices to continue their climb into next year.  Dennis Gartman, CNBC’s favorite figure to put on the screen in an attempt to try to talk gold down ever since he sold his personal gold holdings earlier this month, went so far as to say “if [gold] prices come down another $15 overnight, I’m going to start buying again” on Thursday.

Initial jobless claims reversed course this week, climbing 15,000 to a seasonally adjusted 381,000 which is still below the key 400,000 level that is supposed to signal job growth.  As we enter the New Year, we expect at least another one to two weeks of skewed data.  A holiday on Monday of this week, and another on Monday of next week means that some of the data will be estimated and therefore erroneous.  As temporary hires for the holiday season find their employment coming to an end, we expect that to push the unemployment numbers higher once again and give a true picture of the state of the jobs market.  

Spain, which has been pushed out of the spotlight in view of what has been occurring in Italy lately, re-entered the spotlight with a vengeance on Friday.  The new government in Spain said that this year’s budget deficit was much larger than expected and a slew of tax hikes and spending cuts were announced to try to make up the shortfall.  Deputy Prime Minister Soraya Saenz de Santamaria said “This is just the beginning…We’re facing an extraordinary and unexpected situation, forcing us to take extraordinary and unexpected measures.”  Robert Tornabell, an economist at Barcelona ESADE University said “This is a strong shock.  I didn’t expect this kind of deficit increase.  How can we achieve the objective using personal income taxes and capital taxes?  This means making the recession much worse.”

Contracts to buy existing homes jumped a surprising 7.3% last month according to the National Association of Realtors.  The NAR’s chief economist Lawrence Yun put the surprising jump in perspective, saying “Contract failures have been running unusually high.  Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”  So while the news is welcome, if lending conditions have not improved, which they apparently have not, then many of these contracts may go into failure again.

Oil edged back below $100 a barrel again, pushed down by an unexpected increase in inventory.  Sabre rattling in the Middle East will likely continue to add upward pressure to prices as Iran continues its military exercises in the Strait of Hormuz.  The US “strongly warned” Iran on Wednesday through Pentagon press secretary George Little that closing the Strait of Hormuz “will not be tolerated.”  The US Navy 5^th fleet’s spokeswoman Lt. Rebecca Rebarich said in a separate statement that the US Navy is “always ready to counter malevolent actions to ensure freedom of navigation.”

In China, factory activity shrank again in December as the debt crisis in Europe and a decrease in US demand took their toll.  Qu Hongbin, China economist at HSBC said “While the pace of slowdown is stabilizing somewhat, weakening external demand is starting to bite.  This, plus ongoing property market corrections, adds to calls for more aggressive action on fiscal and monetary fronts to stabilize growth and jobs, especially with prices easing rapidly.”  Mr. Hongbin said that China would avoid a “hard economic landing” if policy easing measures were undertaken in the coming months.  In other words, China may fire up the monetary printing presses just like everybody else.  

The euro nosedived against the dollar this week, pushing below $1.29, near 15 month lows.  Expectations are that it will continue to trend downward based on the continuing sovereign debt woes throughout the region.  The yen pushed higher against the dollar this week.

Friday to Friday Close

Month End to Month End Close

Previous year Comparisons

* Current at time of writing

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

Volatility should be expected to continue.  Ed Steer’s Gold & Silver Daily, which was published today, contains a must read paragraph which he quoted from silver analyst Ted Butler directly regarding the recent price action in silver.  Mr. Butler writes: “We are at an important junction for silver. The commercials have clearly manipulated the price lower so that they could buy as much as possible. They have succeeded beyond my expectations, to be sure. This has put the commercials in their best position yet to exit the long-term silver manipulation. Whether they will refrain from future manipulation will become obvious on the next silver rally. I know that this has been a trying time for silver investors, but it’s important to both understand what has happened…and to look ahead. The intentional price smash has created a powerful set up for the next silver rally. Shame on the COMEX commercial crooks and the regulators who have been derelict in fulfilling their principal mission of protecting the public and preventing manipulation. Just don’t compound the pain by missing what should be a coming silver rally of historic proportions.”  Egon von Greyerz, managing partner at Matterhorn Asset Management said in an interview with King World News this week when asked about the recent price dip in silver and gold “But this is all a thin paper market, we have not seen one single physical seller of gold or silver at these prices.  So it’s just manipulation and panic in a paper market at the year end.  Of course, it’s easy for anyone who wants to intervene to push the price down even further in a thin market.  So I think that’s what’s happening and I wouldn’t worry the slightest bit.”  Mr. von Greyerz continued saying “The combination of strong buyers (physical) at these lower levels and the fact that we will see massive money printing, starting next year, will lift gold and silver very quickly in my view.”  In China, the government has declared that all unauthorized gold exchanges are to be shut down and that all gold trading shall go through Shanghai’s two official exchanges.  This is an important development since the move was apparently designed to protect the individual investor in China from fraudulent “pop-up” exchanges.  We interpret this as the Chinese government moving to reassure its people that they can continue, and are in fact encouraged, to purchase and accumulate gold as an investment without fear of being taken advantage of.  We make this assumption based on the fact that the Chinese government itself has been doing exactly that through its Central Bank purchases of gold.  In a CNNMoney survey of 20 top economists, half of them said that the European economy won’t be back to a sustainable level of growth until 2013.  Only three of them thought that Europe would be able to reverse its current downturn in 2012, and the rest said they don’t expect a full recovery until 2014 or later.  As Europe continues to unravel, the monetary printing presses are expected to go into high gear, both in the US and Europe.  The only outcome of global printing of money is a global devaluation of fiat currencies, which is positive in every way for gold and silver.  It is easy to panic when faced with price dips such as we saw this week, but it is vitally important that you research every news item that appears to be driving prices lower instead of caving in to headline induced feelings of panic.  A simple scan of this week’s news headlines showed virtually no news items that would drive the prices down as we saw, and a slew of items that should have driven them higher instead.  The end of the year is typically a thinly traded time as everyone rushes for the exits for the holidays and JP Morgan and the “Big Commercial Shorts” appear to have used that to their advantage once again to smash prices down so that they can bring their short positions in line with the new position limits that the Commodity Futures Trading Commission will be voting to implement within the coming weeks.  Examining the fundamentals, it is easy to see through the manipulation scheme and remain calm.  If Ted Butler, Jim Rickards, James Turk and the other analysts are correct, we may have just seen what may be looked back upon as the greatest buying opportunity for all of 2011 if prices double, or even better, as they expect next year.  As we enter 2012, these same analysts are predicting for prices to resume their upward climb and to do so in a sudden and dramatic fashion.  Continue to look for buying opportunities in the panic which has been artificially introduced into the market as “Da Boyz” perform one last manipulation to bring their short positions in line with the new limits.  Above all, maintain your ability to stay in these markets through these temporary price dips by not over-extending yourself.    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.   

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

The Week in Review – December 30th, 2011
Posted by Worldwide Precious Metals on Friday, December 30, 2011

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