The Week in Review – May 11th, 2012
May 14, 2012
What an insane week. That’s the best term we can think to describe it, total insanity. News out of Europe triggered meltdowns across all markets this week. As usual, the media outlets were quick to start seeking out doomsayers in an attempt to talk precious metals prices lower.
Initial claims for unemployment in the US slipped marginally lower last week, falling only a net of 1,000 to 367,000 once the previous week’s figure was revised upward. The number was better than expected, but weak enough that it still signals a sluggish and floundering jobs market in the US.
Election results are in across Europe. In France, Socialist Francois Hollande emerged victorious and is widely expected to try to renegotiate the terms of the fiscal pact signed by the majority of the member countries of the European Union. In Greece, the elections were a fiasco. Alexis Tsipras, leader of Greece’s Radical Left Coalition party, which came in second during the weekend election, was unable to form a coalition government and there will likely be a repeat vote. Tsipras caused a massive panic earlier this week by declaring that Greece’s existing bailout agreement was “null and void”. Tsipras in Greece, and Hollande in France both oppose the austerity measures that have gone into place in so much of the Eurozone, with Tsipras even describing them as “barbaric”.
The Bank of England voted not to continue its Quantitative Easing program on Thursday over concerns that inflation was beginning to outweigh the possibility of a prolonged recession. Inflation in the UK rose to 3.5 percent in March, far outpacing the BoE’s target. The UK’s economy also officially went back into recession after shrinking 0.2 percent during the first three months of this year.
In Spain, on Wednesday, the government announced it was taking a 45% controlling stake in Bankia, the country’s third largest bank and the largest real estate lender. Bond yields were spiking again in the beleaguered country as confidence in the banking sector was shaken yet again.
The US housing market continues to struggle with tightened credit conditions that are preventing buyers with otherwise good credit scores from acquiring a mortgage. New rules regarding risk retention in the mortgage lending business may well drive the fees and overall cost of obtaining a mortgage ever higher, even as interest rates continue to hit record lows.
The debate over the “fiscal cliff” is beginning to heat up with multiple Fed Presidents remarking on the subject at the Milken Institute Global Conference in Los Angeles, California last week. Chicago Fed President Charles Evans said “The cliff at the end of this year is just that writ large. Whether or not calmer heads will prevail and avoid this or do something useful, you know that’s about as big an uncertainty as I can imagine anybody facing.” Ben Bernanke, at his press conference two weeks ago, said the “fiscal cliff” is so large that “I think [there is] absolutely no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy. So as I have said many times before, it’s imperative for Congress to give us a fiscal policy.”
China released trade data on Thursday that showed a marked, and drastic, slowdown in both imports and exports. Recessions across the Eurozone and a recovery in the US that just simply refuses to gain momentum are putting a serious dent in China’s exports. China is poised to experience its slowest year of economic growth in close to ten years.
Despite a decline in gasoline and distillate stockpiles, oil remained below $100 a barrel again this week. The crisis in Europe and the slowdown in China appear to have been the main contributing factors to the downward pressure there.
The euro plummeted against the US dollar this week, driven dramatically lower apparently mainly due to the continuing turmoil in Greece. The Japanese yen continued its climb higher against the US dollar.
Friday to Friday Close
|May 4th||May 11th||Net Change|
|Gold||$1645.00||$1584.00||(61.00) – 3.71%|
|Silver||$30.40||$28.85||(1.55) – 5.10%|
|Platinum||$1525.00||$1470.00||(55.00) – 3.61%|
|Palladium||$652.00||$600.00||(52.00) – 7.98%|
|Dow Jones||13038.27||12820.60*||(217.67) – 1.67%|
Previous year Comparisons
|May 13th, 2011||May 11th, 2012||Net Change|
|Gold||$1493.00||$1584.00||91.00 + 6.10%|
|Silver||$35.30||$28.85||(6.15) – 17.57%|
|Platinum||$1770.00||$1470.00||(300.00) – 16.95%|
|Palladium||$705.00||$600.00||(105.00) – 14.89%|
|Dow Jones||12595.75||12820.60*||224.85 + 1.79%|
* 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 perhaps increase further. The fundamental reasons for owning precious metals continue to remain strong. Egon von Greyerz, founder and managing partner of Matterhorn Asset Management in Switzerland, told King World News this week “I don’t think people are focusing enough on the long-term consequences. The masses are just living day-to-day and hoping the current problems will go away, but they won’t. The same people who did not see the problem in 2007/2008 are now saying, ‘It’s over.’ Nothing is over.” Mr. von Greyerz continued, saying “The first consequence of the enormous deficits and massive credit bubbles is going to be hyperinflation. The hyperinflation will come as a result of governments printing unlimited amounts of money. During this hyperinflationary depression, people will see currencies falling in value against real money, gold. In a hyperinflation, nobody benefits from the money creation except the ones standing nearest to the printing press.” Mr. von Greyerz ended with “This is the first time in history that we will see hyperinflation occurring simultaneously in many countries. Previously, this type of event has been isolated to one country at any one time. Gold will be an extremely important means of survival and payment during this hyperinflationary period.” King World News also interviewed James Turk out of Europe this week. Mr. Turk had this to say regarding the state of things in the EU: “Have you seen the growing demonstrations here in Europe, Eric? So far, the protests have mainly been non-violent. They’re protesting in the streets for good reason. Eleven of the seventeen countries in the EU are in a recession. With unemployment growing to record levels in some countries, certain key European nations are definitely in a depression.” Mr. Turk continued in his interview: “Then there is the banking problem, particularly in Italy and Spain, where the banks loaded up with debt from their own government, which shows how their interests are aligned. It looks like these banks and their governments will go down together. The same applies to Japan, the UK, the US, and many other countries with zombie banks and over-leveraged governments. All of these factors make me recognize that holding physical gold is the right thing to do. Gold and silver are the only safe currencies in the world today.” Mr. Turk then closed the interview out in dramatic fashion, saying “So every month I continue to do what I have been recommending to KWN readers for years. Every month I buy some precious metals, and will continue to accumulate them as long as they remain undervalued. Of late I’ve been buying silver. It’s the better value. Note how gold has been holding support at $1650, but silver keeps slipping further below $32. The shorts and central planners are throwing everything they have at the precious metals, Eric, but they are having a hard time trying to beat up gold. Even their so-called ‘fat finger’ trade of 7500 contracts they put in on Monday didn’t break gold.” Poor economic data out of the US and fears over what shakeups the many European elections being held this weekend may result in helped push markets lower today. This may be presenting an excellent buying opportunity to pick up additional precious metals for your portfolio just as Mr. Turk has stated he continues to do. 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 overextend your ability to maintain ownership of your precious metals over the long term.
Trading Department – Precious Metals International, Ltd.
© 2013, Precious Metals International Ltd.
The Week in Review – May 11th, 2012
Posted by Worldwide Precious Metals on Monday, May 14, 2012
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