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The Week in Review – June 22nd, 2012
June 22, 2012
It was a rough week in the markets. The media had hyped the Greek elections and the Federal Reserve meeting this week as major events that could be a turning point in the growing global financial crisis. Both events came and went and appear not to have “moved the needle” at all. The disappointment over the lack of definitive action seems to have factored heavily in triggering Thursday’s sell off across all markets.
Economic data out of the US was disappointing once again this week. Manufacturing grew at its slowest pace in 11 months in June and initial claims for unemployment only declined due to an upward revision in the previous week’s data. The four week moving average of unemployment claims, which is considered to be a better measure of the state of the US labor market, moved to its highest level since early in December.
Wednesday’s comments by Federal Reserve Chairman Ben Bernanke following the conclusion of this week’s meeting seemed to be a massive disappointment for the markets. The Fed did agree to extend “Operation Twist”, but the market was hoping for an outright promise of additional Quantitative Easing. The Fed, citing further slowdown in the US economy, said it was “Prepared to take further action” with Chairman Bernanke stating “Yes, additional asset purchases are among the things we would consider if we need to take additional measures to strengthen the economy.” Mr. Bernanke continued, saying “We’re prepared to do more. We have to get additional information on the state of the economy, what’s happening in Europe.”
On Thursday Christine Lagarde, Managing Director of the International Monetary Fund, said “A determined and forceful move towards complete European monetary union should be reaffirmed in order to restore faith. At the moment, the viability of the European monetary system is questioned.” Ms. Lagarde continued, saying “There must be a recapitalization of the weak banks, with preferably a direct link between the European Financial Stability Facility/ESM and the banks, without going through the sovereign, in order to break the negative feedback loop that we have between banks and sovereigns.”
Independent auditors in Spain have estimated that the besieged banks in that country may need up to 62 billion euros in fresh capital to bail them out. Borrowing costs for the latest member of the Eurozone to succumb to its massive debt load have spiked to their highest levels in 15 years.
The Greek elections went off successfully this week with the pro-bailout parties appearing to have carried the day. New Prime Minister Antonis Samaras however, has spent this week attempting to re-negotiate the terms of the very bailout that he promised to uphold. A “senior Eurozone official” told Reuters on Tuesday “Anybody who would say that we need not, and cannot renegotiate the Memo of Understanding (MoU) is delusional, because he, or she, would be under the understanding that the whole program, the whole process, has remained completely on track ever since the weeks before the Greek first election. Because the economic situation has changed, the situation of tax receipts has changed, the rhythm of implementation of the milestones has changed, the rhythm of privatization has changed, if we were not to change the MoU, it does not work.” This appears to have been directly aimed at German Chancellor Angela Merkel who is adamantly opposed to renegotiating the bailout agreement.
Moody’s followed through on its downgrade of 15 major banks this week with the announcement coming late on Thursday after markets were closed. Friday saw very little reaction to the downgrade as most analysts feel that the move has been telegraphed for months and was therefore already priced into the markets. The fallout will still be felt by the banks themselves as the credit rating downgrades will likely cost those banks their borrowing costs spike higher and they are required to post higher collateral amounts against trades. Some analysts project that the additional costs to these banks may reach into the billions.
Crude oil broke through the $80 floor this week amid poor economic data out of the US and China, and continued pressure coming from the crisis in Europe.
The euro struggled higher against the US dollar for much of the week, but reversed course amid Thursday’s mass selloff in the markets. The yen traded essentially sideways for most of the week, but also saw a steep and sharp decline amid Thursday’s mass selloff.
Friday to Friday Close
| June 15th | June 22nd | Net Change | |
|---|---|---|---|
| Gold | $1628.00 | $1567.00 | (61.00) – 3.75% |
| Silver | $28.75 | $26.70 | (2.05) – 7.13% |
| Platinum | $1487.00 | $1453.00 | (52.00) – 3.50% |
| Palladium | $630.00 | $606.00 | (24.00) – 3.81% |
| Dow Jones | 12767.17 | 12655.50* | (111.67) – 0.87% |
Previous year Comparisons
| June 24th, 2011 | June 22nd, 2012 | Net Change | |
|---|---|---|---|
| Gold | $1501.00 | $1567.00 | 66.00 + 4.40% |
| Silver | $34.65 | $26.70 | (7.95) – 22.94% |
| Platinum | $1675.00 | $1435.00 | (240.00) – 14.33% |
| Palladium | $730.00 | $606.00 | (124.00) – 16.99% |
| Dow Jones | 11934.58 | 12655.50* | 720.92 + 6.04% |
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
|---|---|---|
| Support | 1550/1525/1500 | 26.50/26.20/26.00 |
| Resistance | 1580/1600/1640 | 27.00/27.50/28.00 |
| Platinum | Palladium | |
|---|---|---|
| Support | 1420/1400/1385 | 600/585/560 |
| Resistance | 1450/1480/1500 | 620/640/670 |
Volatility should be expected to continue and may increase dramatically in the coming weeks. This week seems to have presented a perfect buying opportunity to get back into the precious metals market. Poor economic data out of the US, China, and the ongoing and escalating crisis in the Eurozone all seem to have led to an unwarranted selloff. George Gero, RBC Capital Markets Precious Metals Strategist, told CNBC “Gold has been selling off because of all the anti-inflationary headlines. Fed warning on the economy, weak employment data, weak manufacturing data are all anti-inflationary.” Mr. Gero agreed with a report by Barclays Capital Management which said that the long-term macro picture for gold remains bullish, saying “Every time we have had a sell-off, it’s turned out to be a buying opportunity.” Egon von Greyerz, founder and managing partner at Matterhorn Asset Management in Switzerland, told King World News this week “Eric, the entire financial system is under immense pressure. First you have the EFSF, the European Stability Fund, they are saying they must buy euro debt. The problem is that fund is now just 440 billion euros, which is nowhere near enough to support all of these failing European countries or their banking systems.” Mr. von Greyerz continued, saying “The risk in the financial world as a whole right now is enormous. The Fed knows this and they are trying to avoid direct QE, but they will not be able to do that for very long.” The long term fundamental picture for owning precious metals remains unchanged. The market has become entrenched in a vicious cycle of alternating fear and disappointment and has strayed far from trading on the true fundamentals. It is imperative that you keep the true fundamentals of investing in precious metals over the long term clear in your mind during these times of uncertainty. This fear and uncertainty may well be presenting the perfect buying opportunity to add more precious metals to your portfolio at a discount. Slowly and steadily, fear and uncertainty will evolve into shock and realization when it becomes apparent that the stopgap measures that the world’s governments and Central Banks have desperately tried in order to save the fiat currency system have failed. As these same Central Banks are forced to print more and more money, under the guise of “monetary easing”, to bail out the failing banking systems and address massive governmental debt loads in this interconnected global financial world we all live in, fiat currencies will continue to lose value. As fiat currencies lose their value, inflation will take hold, perhaps even moving straight into hyperinflation. If that hyperinflationary move takes place, precious metals prices may move to astronomical levels that make today’s prices look miniscule in comparison. Every solution under discussion in the Eurozone seems to involve printing more money. Even the US Federal Reserve is giving significantly stronger hints that more Quantitative Easing may be on the way, which means more money printing. In that environment, owning precious metals, accumulating more on any temporary price dips, and holding on to your product for the long term as the global financial system shows further signs of completely coming apart seems like the best way to be prepared for the eventual collapse of the fiat currency system. 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. Always remember that you should 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.
www.wwpmc.com
The Week in Review – June 22nd, 2012
Posted by Worldwide Precious Metals on Friday, June 22, 2012
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