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The Week in Review – July 13th, 2012
July 13, 2012
The fundamentals supporting precious metals prices appear to be growing even stronger. This week’s data dump from multiple countries generated a media “spin” frenzy as media outlets struggled to put a positive spin on the state of the struggling global economy.
The scandal surrounding the fixing of the London interbank offer rate (Libor) continues to expand and shows signs that it may spill over into other interbank offer rates. 16 banks were involved in setting the Libor rate during the period of time under scrutiny and at least 12 of those are under investigations by various regulatory bodies. The lawsuits have already begun to pile up and the projections of the costs of both regulatory penalties and fines and damages to investors and counterparties may approach $22 billion according to estimates by Morgan Stanley.
Initial claims for unemployment in the US hit their lowest number in four years, but many believe the data may be skewed due to the July 4th holiday in the middle of the week. The initial reading for July of the Thomson Reuters/University of Michigan’s Consumer Sentiment index hit its lowest level in 7 months.
And yet another Wall Street scandal hits the press. Peregrine Financial Group filed for bankruptcy on Tuesday, following the discovery of an apparent suicide attempt of its founder and CEO Russell Wasendorf on Monday. Regulators say that as much as $200 million in customer funds are unaccounted for so far. This is yet another black eye for the CFTC and when combined with the mounting pressure of all the scandals that broke last week in regards to Libor and JPMorgan’s alleged activities in manipulating the Energy market, may finally force some action out of the besmirched regulatory body.
The Federal Reserve released the minutes of their latest FOMC meeting and it was virtually a carbon copy of its previous meetings, disappointing the stock markets with its lack of mention of additional quantitative easing measures once again. The Fed, of course, continues to stand ready to implement additional monetary easing if required.
China’s GDP growth rate hit its slowest pace in three years in the second quarter according to official data released this week. Economists were grasping at straws to try to paint a picture of coming strength in the coming months, ignoring the official numbers and citing their own analysis of loan growth, power output and oil demand instead.
Oddly, following a Moody’s downgrade of Italy’s rating to just two notches above junk status, Italy’s three year borrowing costs fell, dropping below 5%. Moody’s said, regarding current reform measures underway in the country, “The negative outlook reflects our view that risks to implementing these reforms remain substantial. Adding to them is the deteriorating macroeconomic environment, which increases austerity and reform fatigue among the population. The political climate, particularly as the spring 2013 elections draw near, is also a source of implementation risk.”
According to RealtyTrac, banks are moving delinquent loans into foreclosure proceedings at a faster pace. The increase in supply of distressed homes hitting the market may trigger another decline in home prices just as analysts were beginning to see glimmers that prices may have finally bottomed.
Crude oil was solidly in the middle $80 a barrel range again on Friday. Announcement of increased sanctions against Iran by the US, and Iran’s threat to shut down the Straits of Hormuz if the sanctions continue are helping to support oil prices even as the global economy continues to show signs of slowing further.
The euro continued its drop against the dollar, sinking to two year lows as the Eurozone continues to struggle under its sovereign debt woes. The Japanese yen edged higher against the dollar this week.
Friday to Friday Close
| July 6th | July 13th | Net Change | |
|---|---|---|---|
| Gold | $1580.00 | $1592.00 | 12.00 + 0.76% |
| Silver | $27.00 | $27.35 | 0.35 + 1.30% |
| Platinum | $1445.00 | $1430.00 | (15.00) – 1.04% |
| Palladium | $578.00 | $585.00 | 7.00 + 1.21% |
| Dow Jones | 12772.47 | 12680.25* | (92.22) – 0.72% |
Previous year Comparisons
| July 15th 2011 | July 13th 2012 | Net Change | |
|---|---|---|---|
| Gold | $1525.00 | $1592.00 | 67.00 + 4.39% |
| Silver | $35.40 | $27.35 | (8.05) – 22.74% |
| Platinum | $1775.00 | $1430.00 | (345.00) – 19.44% |
| Palladium | $775.00 | $585.00 | (190.00) – 24.52% |
| Dow Jones | 12479.73 | 12680.25* | 200.52 + 1.61% |
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
|---|---|---|
| Support | 1570/1550/1530 | 27.00/26.50/26.10 |
| Resistance | 1600/1625/1650 | 27.60/27.90/28.50 |
| Platinum | Palladium | |
|---|---|---|
| Support | 1420/1400/1375 | 570/550/525 |
| Resistance | 1440/1460/1500 | 590/610/640 |
Volatility should be expected to continue as the global economy continues to show signs of slowing. Precious metals have survived yet another takedown attempt this week, and the fundamentals supporting a coming explosion to the upside appear to have grown even stronger. Europe continues to struggle under its massive debt burden, and there still seems to be no feasible plan to resolve the situation. In a report issued by Goldman Sachs on Friday, the firm noted that the current 100 billion euro aid package expected to see final agreement in late July, may not be enough to salvage the crippled Spanish banking system and that more measures may be needed. China’s economy still appears to be slowing, despite analyst’s attempts to make the statistics show otherwise. In the United States, housing may be in for another downturn as distressed properties flow into the market again driving prices down. In perhaps a sign of just how desperate the housing situation in the US has become, San Bernardino County, in California, apparently began exploring the legality of using eminent domain to seize underwater mortgages and write down their principal values. The effects of this would be massive and far reaching, as it would almost certainly affect the values of the very Mortgage Backed Securities that, due to their incorrect valuation, triggered the initial financial crisis in the first place. The scandals surrounding financial institutions across the globe may finally, and sadly, force the CFTC to act on the precious metals manipulation accusations they have been receiving for years. Ned Naylor-Leyland, investment director at Cheviot, told CNBC on Thursday that the Libor scandal may have opened markets up to “more scrutiny and more investigation.” Naylor-Leyland said he expects to see revelations over the next few months that the price of gold was also manipulated because “gold and silver reflect the true value of money the same way interest rates do.” Naylor-Leland continued, saying “It is effectively an intervention in two ways; one would be the fact that for central banks, gold and silver going up doesn’t make their currency look any good, and secondly, a number of the big commercial banks have very large short positions which they like to manage and make easy money from.” JP Morgan, long the chief “big bank” accused of accumulating massive short positions in the silver market which they then use to manipulate the price to their advantage, is now under several different investigations for other manipulation schemes. JP Morgan has been implicated in the Libor scandal, is apparently under investigation for manipulation of the energy market, and the US Congress has been scrutinizing their activity since details of the failed “London Whale” trade emerged. As scandal after scandal emerges, most having taken place right under the noses of the very regulators that were supposed to have been monitoring these firms, calls for action and penalties are growing increasingly louder. Drought conditions across the agricultural areas of the US are beginning to show signs of pushing food prices higher. Even Italy has reported that weather conditions there may severely impact grapes and therefore curtail wine production there this year. Despite the fact that so called “volatile” food and energy costs are stripped out of official inflation figures, spiking global food costs may well be the first sign of impending inflation as the monetary printing presses across the globe continue whirring. Precious metals may well skyrocket in those circumstances. 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 – July 13th, 2012
Posted by Worldwide Precious Metals on Friday, July 13, 2012
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