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The Week in Review – December 9th, 2011

December 9, 2011

It was another week flooded with Eurozone news as yet another summit of European leaders convened in Brussels, Belgium. The apparent disorder and chaos occurring in the European Union seems to be leading markets to trade purely on news headlines and emotion. In such uncertain times it is important to keep calm and closely examine the fundamentals that support the precious metals market.

In Brussels, Belgium the fourth, and final summit (for 2011 at least) of European leaders that was reportedly going to “save the euro” as a viable currency, left everyone uncertain as to the future direction of the European Union as a whole. Reportedly twenty six of the 27 countries that make up the European Union have apparently agreed to sign a separate treaty, apart from the original EU treaty, the intent of which is to achieve tighter integration and stricter budget discipline amongst the signers. The UK stood alone in its refusal to join and Prime Minister David Cameron went so far as to tell journalists Britain “would never join the euro”.

On Monday, Standard & Poor’s placed 15 of the 17 Eurozone governments on review for a possible credit rating downgrade citing “our belief that systemic stresses in the Eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the Eurozone as a whole.”

Initial claims for unemployment benefits hit a 9 month low last week according to a report by the Labor Department released on Thursday. Claims beat economist’s expectations, falling to 381,000 (seasonally adjusted). Temporary hiring for the holiday season will likely continue to skew the numbers until January, as we’ve discussed in our previous memos. Examining the non-seasonally adjusted numbers shows that they remain at last year’s levels, indicating that the rosy picture Thursday’s “seasonally adjusted” numbers paint is inaccurate.

In the housing industry, which seems to have lost its news spotlight amongst all the news out of Europe and the MF Global meltdown, the inventory of homes in the foreclosure process hit a record high last week. This does not bode well for a housing industry which still continues to struggle in its recovery. Home prices appear to still be declining and if the trend continues, additional homeowners could go “underwater”, a state where they owe more on their home than it is worth on the market.

The fallout from the MF Global meltdown continues. Jon Corzine appeared in front of Congress this week and quite bluntly said “I simply do not know where the money is, or why the accounts have not been reconciled to this day” in a prepared statement regarding over 1.2 billion dollars in missing customer money. The fallout will likely continue to expand with the latest victims being farmers who had money invested with MF Global. That money, much of which has come up missing, is causing some farmers to delay seed, land and equipment purchases which may lead to a disruption in crops for next year.

The Department of Energy and EIA reported on Wednesday that crude oil and petroleum stocks increased more than expected, which sent prices lower. Crude prices are below $100 a barrel again, but continue to seem firmly entrenched in the upper $90 a barrel range.

The euro continued its decline against the dollar for most of the week, but reversed course as news of a new treaty designed to bolster the euro emerged from of the summit in Brussels. The yen was also up against the dollar for the week.

Friday to Friday 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. Europe will likely continue to dominate the news as European leaders begin to flesh out the details of their latest solution to save what many believe to be a doomed currency. Adam Cole, global head of FX strategy at RBC Capital Markets said “The summit outcome, along with the ECB press conference yesterday, make it more likely than not that S&P will carry out its threat to downgrade most of the Eurozone member states in the coming days.” In a Bloomberg News article by Nicholas Larkin published this morning, Mr. Larkin said “Eighteen of 26 [gold traders] surveyed by Bloomberg expect the metal to advance next week, the highest proportion since Nov. 11.” Further in the article Mr. Larken quotes Mark O’Byrne, executive director of Dublin-based GoldCore Ltd., saying “Gold bar and coin demand in Europe more than doubled to 118.1 tons in the third quarter from a year earlier, data from the London-based World Gold Council show. European Union clients opened a record number of accounts with GoldCore last week and that may be exceeded this week.” John Embry, Chief Investment Strategist for Sprott Asset Management, said in an interview with King World News yesterday when asked if there was any chance for the central planners to save the system: “Zero. I’m a huge believer in Austrian economics, so you have to know where I’m coming from. Ludwig von Mises, the Founder of Austrian economics, said it best. When you have an excessive credit cycle you have only two choices.” Mr. Embry continued in the interview “You can stop it when it gets beyond where it should be, and it’s way beyond where it should be now; You can either take the pain and clean out the debt or you can continue to try and create more and more debt to keep the other stuff afloat and have a complete collapse of the currency system. Well we’ve opted for the latter and that’s where we are going.” When asked specifically about the recent action in gold, Mr. Embry said “I think one thing that has to be realized and it is the core argument to the whole gold bull, is that there is no other direction for all fiat paper currencies at this point than down. Gold and silver are constants. They have been constants for centuries and centuries. So as these paper currencies in which they are valued inevitably fall, the price of gold and silver have to go up.” Mr. Embry finished his interview by speaking about silver, saying: “As you know I’ve been very vocal on the subject of silver. When gold goes, silver is going to go further for the simple reason that in extended bull markets for precious metals, the gold/silver ratio tends to fall. Historically it’s gotten down as low as ten or fifteen to one. It’s currently over fifty. So consequently silver has all sorts of room on the upside. For instance, $2,500 or $3,000 gold, that could underwrite $250 silver. Think about that, that’s eight times where it’s trading today.” In these uncertain times, as Europe appears to be on the verge of imploding financially, keep your wits about you and the long term nature of investing in precious metals foremost in your mind. Look for buying opportunities to offer themselves up, allowing you to purchase additional precious metals for your portfolio at what may be a steep discount, if such noted analysts as Ted Butler, James Turk and John Embry are correct about the coming moves in this market. 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 9th, 2011
Posted by Worldwide Precious Metals on Friday, December 9, 2011

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