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The Week in Review – July 27th, 2012
July 30, 2012
On Thursday, Mario Draghi announced that the ECB stood ready to do whatever was necessary to save the Eurozone from collapse. German Chancellor Angela Merkel and French President Francois Hollande followed suit on Friday saying, in a joint statement, “Germany and France are deeply committed to the integrity of the euro zone. They are determined to do everything to protect the Eurozone.”
Initial claims for unemployment fell sharply this week, beating economist’s expectations but there appear to be some errors in the Labor Department’s model for projecting “seasonally adjusted” unemployment data so once again this week’s figures may be erroneous. Last week’s figures were revised upwards. Durable goods orders in June declined, indicating additional contraction in the manufacturing sector of the US which may be an advance indication that job cuts may be on the horizon.
The final Thomson Reuter/University of Michigan US Consumer sentiment readings are in and they struck their lowest level for the year in July. Richard Curtin, the survey director, said “While consumers do not anticipate an economy-wide recessionary decline, they do not expect a pace of economic growth that could satisfactorily revive job and income prospects. Moreover, consumers have become increasingly convinced that current economic policies are incapable of solving the underlying problems facing the economy.”
It seems the mainstream media is finally starting to pick up on what the rest of us have been saying for the past several years. An article that appeared on CNBC’s web site Friday posed this question: “can fiat currencies survive round after round of debasement?” Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, says investors will soon start to demand that fiat currencies be backed by gold or some other form of hard assets. Mr. Mobius said “It’s already happening, you’re beginning to see that trend with central banks stocking up on gold. The estimate is that at least half of the buying is central bank buying. They are looking to the day when they can say okay, our currency is backed by gold and therefore we’re a strong country.”
China is bracing for a steep increase in prices of corn, soybeans and animal hides this year as the US struggles with its worst drought in 50 years. Soybeans have become particularly important for the Chinese as they are the main source of feed for pigs, which the Chinese people have begun to consume in large quantities as their personal wealth has increased. A sharp rise in food prices for the Chinese may limit Beijing’s options for trying to overcome the current economic slowdown in the Chinese economy.
William Buiter, chief economist at Citi said on Thursday that there is now a 90 percent chance that Greece will be forced to exit the Eurozone in 2013. In his research note, Buiter said “Our base case [for the Eurozone] is for prolonged economic weakness and financial market strains in periphery countries, spilling over into renewed recession for the euro area as a whole this year and the next. Buiter continued, addressing Spain and Italy’s troubles a well, saying “Even with the Spanish bank bailout, we continue to expect that both Spain and Italy are likely to enter some form of troika bailout for the sovereign by the end of 2012.
Pending sales for existing homes in the US were down in July, apparently due to a dwindling supply as current homeowners appear to be unwilling to list their homes now for fear over the current economic slowdown may affect their employment status and thus, their ability to acquire a mortgage. New home sales saw their biggest drop in more than a year, according to the US Commerce Department. The drop in both pending and new home sales may mean the housing industry is still struggling.
Crude oil dipped back below the $90 a barrel mark over continued concerns that Spain may need a full blown bailout to address its spiraling sovereign debt crisis. An increase in US Crude inventories also helped push prices lower. Escalating tensions in the Middle East may lead to an increase in prices again in the near future.
The euro declined against the dollar for most of the week, but reversed course when news broke that Greece had come up with a plan to save close to 12 billion euros over the next two years in an effort to meet the conditions of the latest bailout agreement. An announcement on Thursday by ECB President Mario Draghi saying the ECB would do whatever was necessary to save the Eurozone from collapse helped bolster the euro’s move higher. The Japanese yen continued its climb against the dollar this week.
Friday to Friday Close
| July 20th | July 27th | Net Change | |
|---|---|---|---|
| Gold | $1583.00 | $1618.00 | 35.00 + 2.21% |
| Silver | $27.35 | $27.50 | 0.15 + 0.55% |
| Platinum | $1415.00 | $1405.00 | (10.00) – 0.71% |
| Palladium | $576.00 | $570.00 | (6.00) – 1.04% |
| Dow Jones | 12822.57 | 13075.66* | 253.09 + 1.97% |
Previous year Comparisons
| July 29th 2011 | July 27th 2012 | Net Change | |
|---|---|---|---|
| Gold | $1628.00 | $1618.00 | (10.00) – 0.61% |
| Silver | $40.10 | $27.50 | (12.60) – 31.42% |
| Platinum | $1785.00 | $1405.00 | (380.00) – 21.29% |
| Palladium | $827.00 | $570.00 | (257.00) – 31.08% |
| Dow Jones | 12143.24 | 13075.66* | 932.42 + 7.68% |
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
|---|---|---|
| Support | 1600/1575/1550 | 27.30/27.00/26.50 |
| Resistance | 1630/1650/1675 | 27.80/28.00/28.40 |
| Platinum | Palladium | |
|---|---|---|
| Support | 1400/1380/1350 | 560/550/520 |
| Resistance | 1420/1450/1480 | 585/600/620 |
Volatility should be expected to continue as the global economy continues to struggle and remains mired in uncertainty. In the European Union, triggered by the LIBOR scandal that has major European banks scrambling under investigative scrutiny, the EU Commission has proposed a set of reforms that would make manipulating international commodity benchmarks such as Brent crude oil, cocoa, and gold, a criminal offense. The EU commissioner for the internal market, Michel Barnier, said “By imposing criminal sanctions for serious market abuse throughout the EU we send a clear message to deter potential offenders – if you commit insider dealing or market manipulation you face jail and a criminal record.” Coincidentally, Bart Chilton stated this week that he thought the CFTC’s four year old investigation into whether JP Morgan has been manipulating the silver market might actually be completed by September or October. Maybe with Europe threatening to take their own action, the CFTC finally decided they should step things up. Mainstream media outlets are beginning to realize that the serial bailouts being carried out across the globe are debasing fiat currencies at a faster and faster pace. Tocqueville Gold Fund manager John Hathaway is in full agreement. In an interview with King World News this week, Hathaway said “The issues for paper currencies are not isolated to the euro or the dollar, it’s the whole system that’s based on unanchored paper currencies. We are at the end game for all of that, and over the next three or four years I think we will see gold reintroduced in an official monetary role.” Hathaway also said “That can only be done at substantially higher valuations in terms of paper currency.” The US Federal Reserve meets again next week and the latest economic data, coupled with events in Europe, may finally be enough to trigger another round of stimulus in the form of additional quantitative easing. Hathaway continued in his interview, saying: “This year long consolidation is in its final stages, and I don’t think gold is going to creep higher when that gets resolved. I think gold is going to move very explosively and not give all of the people who sold it a chance to get back in.” If the Federal Reserve announces another round of QE, and the European Central Bank launches another Long Term Refinancing Operation, as is expected to occur next week, then the stage should be set for precious metals prices to resume their upward climb, and to do so in spectacular fashion. Maintain ownership of your precious metals products through any temporary price dip, keeping in mind the long term nature of investing in precious metals, and be prepared to act swiftly in the coming week(s) if the metals explode to the upside. The fact that the news broke that Europe may be considering another LTRO after the metals market closed may mean that Sunday could be the start of some serious upside to metals prices when Asia opens. The fact that the stock market rallied on news reports that additional bailouts in Europe and the US may be on the near horizon shows just how desperate the situation in the global financial market has become. Currency debasement here we come, let the race to the bottom begin! It is the wise investor that continues to own and even accumulates additional product in this environment. 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 27th, 2012
Posted by Worldwide Precious Metals on Monday, July 30, 2012
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