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The Week in Review – January 27th, 2012

January 27, 2012

It was another exciting week in precious metals! Ben Bernanke was on all the mainstream media airwaves on Wednesday carrying out the Federal Reserve’s new “transparency” policy. The Federal Reserve had previously stated that “exceptionally low” interest rates would be in effect until 2013. On Wednesday, the Fed extended that timeline, saying economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

The Federal Reserve’s announcement Wednesday was just another prod for those sitting with their cash on the sidelines to put it to work in something else. When asked about the pain that the Fed’s policies are causing savers, Chairman Bernanke said “we do think about that. I guess the response I would make is that the savers in our economy are dependent on a healthy economy in order to get adequate returns.” He added that once low interest rates spurred recovery, “that in turn will lead ultimately to higher returns across all assets for savers and investors.” Extrapolating from the fact that the Fed deems it necessary to keep interest rates “exceptionally low” for close to three more years, we can project three more years of punishment for those who choose to save their money instead of putting it to work in investments.

Initial claims for unemployment rose last week, moving to 377,000, but still below the key 400,000 level economists say signifies an improving jobs picture. The Federal Reserve, in their press conference Wednesday, said that it expects growth to remain modest this year and that we will see only gradual declines in the unemployment rate.

The Commerce Department released a report on Thursday showing that new home sales reached a level of just 302,000 in 2011. Economists say that annual new home sales should be at 700,000 in a healthy economy, and last year’s figure is now officially the worst year on records that date back to 1963. Adding to the pressure on the housing industry, builders also ended 2011 with their worst year on record for single family home construction.

Greece and its private creditors are ‘very close’ to a deal according to Olli Rehn, the European Union’s monetary affairs commissioner during a debate hosted by CNBC in Davos. This sentiment has been floating around the media for the last two weeks and yet there is still no deal, so we remain cautious that this weekend will prove any different.

Portuguese government bond yields hit new euro-era highs Friday, driven to that level by investor fears that the beleaguered country may soon require a second bailout, just as Greece did. If these fears come to pass, it could very well be the trigger for the chain reaction leading to the Eurozone melt-down that everyone seems to be waiting for. If Greece fails to come to a resolution and winds up in default, the fallout could be immense as a “if they don’t pay their debts then I’m not paying mine” mentality takes hold.

Crude oil continues to be volatile, hovering just below $100 a barrel currently. The uncertainty surrounding what effect the upcoming Iranian sanctions will have on the price of crude oil is apparently the driving force behind the current volatility in crude.

Despite continued uncertainty surrounding Greece, the euro moved higher again this week against the dollar, apparently benefitting from a mass exit of the dollar after Bernanke’s speech on Wednesday. The yen moved downward for most of the week, but reversed that trend after Bernanke’s speech as well.

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 and possibly increase. The Federal Reserve may very well have lit the fuse on the precious metals rocket this week with their announcement on Wednesday that interest rates will likely remain at “exceptionally low” levels through late 2014. The longer Mr. Bernanke spoke and the greater the detail he provided about the Fed’s policies, it seemed the higher precious metals prices went. During his press conference, Mr. Bernanke said, when asked about inflation fears, “We’re targeting 2% inflation.” When asked by one of the reporters “Do you worry that inflation may get out of control?” Mr. Bernanke said “Inflation may move away from desired levels.” If inflation truly “gets out of control” as the reporter surmised, and Mr. Bernanke seemed to even expect, then precious metals prices may very well explode to the upside. Noted silver analyst Ted Butler, whom we quote often due to the accuracy of his predictions for silver, had this to say regarding the action this week: “If JPMorgan is not selling but is, in fact, buying, then a very different scenario could develop, similar to how I have speculated in the past. If JPMorgan is buying and not the technical funds, then a very different and bullish scenario emerges. If JPMorgan decides not to put its head back into the lion’s mouth and withdraws from manipulating silver, then a new silver chapter may have begun. Let me be clear – there is no way of determining for sure who is buying and selling today and this past Friday; only future COTs [Commitment of Traders report] will reveal that. If it turns out that JPMorgan is buying back more of its short position on these rallies that would suggest much higher prices to come and maybe real soon. This goes to the heart of the silver manipulation. Take away the big silver short and you should take away the manipulation itself. I’m not saying that is the case, just that it might be. I would play it, as I always do, like it may be the end of the manipulation, simply because if it is, there will be little likelihood of second chances to get on board easily.” Rumors are flying that Iran and India have negotiated a deal for India to purchase oil using gold, bypassing the need for dollars from the US financial system, and thereby skirting around the sanctions imposed by the US. If this rumor turns out to be true, that is just one more nail in the US dollar as the world’s reserve currency. As confidence erodes in the US dollar and other currencies across the globe, precious metals prices may take off to the upside and do so with a speed and violence none of us has seen in our lifetimes, especially if the precedent has already been set to use gold as currency for trades as India and Iran are rumored to be doing. If Ed Steer, Ted Butler, Jim Sinclair, and the numerous other analysts that we quote on a regular basis are correct, then we may have seen the low prices for 2012 at the beginning of January, and time may be running out for those sitting on the sidelines, watching their cash earn a paltry 1% if they are lucky, to get into these markets at what may be looked back on as “bargain basement” prices in the coming months. Keep your eyes and ears on the news and be aware that if prices start to move as rapidly as these analysts expect, there will be little time to react. 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 – January 27th, 2012
Posted by Worldwide Precious Metals on Friday, January 27, 2012

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