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The Week in Review – July 31st, 2012
July 31, 2012
It’s the end of another month and this week is packed with potential newsworthy events, any of which could trigger the meteoric rise in precious metals prices that the majority of market analysts are now expecting to occur.
The US Federal Reserve is holding its Federal Open Market Committee meeting Tuesday and Wednesday and many expect the Fed to finally determine that additional quantitative easing will be required to stave off the effects of the crisis in Europe. The next policy meeting will not be held until September and many feel that the issues in Europe pose a downside risk to the US economy and therefore warrant a “pre-emptive strike” of additional easing as a form of insurance against it.
Bill Gross, Managing Director at bond giant PIMCO, said in his monthly market analysis “The cult of equity is dying. Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors’ impressions of ’stocks for the long run’ or any run have mellowed as well.” Mr. Gross went on to say “Financial repression, QEs of all sorts and sizes, and even negative nominal interest rates now experienced in Switzerland and five other Euroland countries may dominate the timescape. The cult of equity may be dying, but the cult of inflation may only have just begun.”
In the US, the Department of Agriculture released its latest data on Monday which reported that just 24 percent of the corn crop, across 18 “corn belt” states, is in good to excellent condition and that 48 percent is in “poor or worse” shape as the drought continues to bake the crops. Soybeans also took a hit, with 29 percent of that crop estimated to be in good or excellent shape. Corn and soybean prices have been skyrocketing as a result. On Monday, livestock and poultry producers asked the US government to cancel the use of corn based ethanol in gasoline production for one year. Ethanol is expected to use at least 40% of the dwindling corn crop and livestock and poultry producers have been selling off their animals to try to cut down on the skyrocketing feed costs.
Economic data out of Europe continues to disappoint and the global finance system is awaiting the conclusion of the European Central Bank’s policymakers meeting this week. Last week ECB President Mario Draghi pledged to do “whatever it takes” to preserve the euro. Despite similar statements from German Finance Minister Angela Merkel and French President Francois Hollande, Germany’s central bank is deeply opposed to many of the potential solutions that are being considered to try to solve the crisis. Mr. Draghi himself is now apparently under investigation for potential conflict of interest due to his membership in the Group of Thirty (G30), an international forum of both public and private sector financial leaders.
Crude oil has been on a rollercoaster ride this week, pushing back above $90 a barrel only to dip back into the upper $80 range as Europe’s economic data continued to show disappointing numbers. It seems, at least for the first part of this week, that geopolitical tensions in the Middle East have quieted down some, easing pressure on the price.
The euro dipped lower against the dollar this week as the outcomes of both the US Federal Reserve’s and the European Central Bank’s policy making meetings are awaited. The Japanese yen traded sideways against the US dollar for the first part of this week.
Friday to Tuesday Close
| July 27th | July 31st | Net Change | |
|---|---|---|---|
| Gold | $1618.00 | $1610.00 | (8.00) – 0.49% |
| Silver | $27.50 | $27.95 | 0.45 + 1.64% |
| Platinum | $1405.00 | $1417.00 | 12.00 + 0.85% |
| Palladium | $570.00 | $590.00 | 20.00 +3.51% |
| Dow Jones | 13075.66 | 13008.68* | (66.98) – 0.51% |
Month End to Month End Close
| June 29th | July 31st | Net Change | |
|---|---|---|---|
| Gold | $1604.00 | $1610.00 | 6.00 + 0.37% |
| Silver | $27.60 | $27.95 | 0.35 + 1.27% |
| Platinum | $1447.00 | $1417.00 | (30.00) – 2.07% |
| Palladium | $582.00 | $590.00 | 8.00 + 1.37% |
| Dow Jones | 12834.64 | 13008.68* | 174.04 + 1.36% |
Previous year Comparisons
| July 29th 2011 | July 31st 2012 | Net Change | |
|---|---|---|---|
| Gold | $1628.00 | $1610.00 | (18.00) – 1.11% |
| Silver | $40.10 | $27.95 | (12.15) – 30.30% |
| Platinum | $1785.00 | $1417.00 | (368.00) – 20.62% |
| Palladium | $827.00 | $590.00 | (237.00) – 28.66% |
| Dow Jones | 12132.49 | 13008.68* | 876.19 + 7.22% |
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
|---|---|---|
| Support | 1600/1580/1550 | 27.80/27.30/26.80 |
| Resistance | 1625/1640/1675 | 28.40/29.00/29.50 |
| Platinum | Palladium | |
|---|---|---|
| Support | 1400/1380/1350 | 575/560/540 |
| Resistance | 1430/1450/1475 | 600/625/640 |
Volatility should be expected to continue and may increase as the US Federal Reserve and the European Central Bank try to come up with plans to stave off what appears to be inevitable. The pressure appears to be growing at both the US Federal Reserve and the European Central Bank, as a result of the escalating sovereign debt crisis threatening to engulf Europe, to launch additional economic stimulation measures which would, in effect, amount to firing up the monetary printing presses once again. The stock markets across the globe seem to relish the thought of the further debasement of global fiat currencies, climbing higher at just the hint of further monetary easing. The situation in Europe seems to be bordering on an economic implosion that, by all indications, will cripple the whole of Europe. Greece is limping along, struggling just to meet the terms of its bailout agreement, and expectations are growing that the debt-laden country will soon have no choice but to exit the Eurozone; Spain, which was granted a 100 billion euro loan to bail out its struggling banking sector, originally stated that it might not require the full amount of the loan they had been given in order to recapitalize its banks. Days later rumors began surfacing that not only would the full amount be required, Spain might even be bordering on requiring a full blown EU/IMF bailout on the scale of approximately 300 billion euros. John Embry, Chief Investment Strategist at Sprott Asset Management, said in an interview with King World News this week “So the sentiment backdrop is perfect for an explosion in both the gold and silver price. But the fact is that the interference [in the gold and silver markets] is going to be overcome with a strong upward thrust in both gold and silver. We may finally see some interesting revelations in the silver market in the month of August. This could really light a fire under both gold and silver.” Bill Gross, of PIMCO, has added his own voice to the chorus of those declaring that the stock market is essentially dead. Mr. Gross even went so far as to say “the cult of inflation may only have just begun.” The sheer amount of monetary printing which may be required to keep the US and European economies afloat may be staggering and the fiat currency debasement, and accompanying inflation as a result, may well mean that the explosion that John Embry and others are expecting in precious metals prices may be coming to fruition in the near future. Now is the time for wise investors to be ensuring that they maintain ownership of their existing precious metals products, and perhaps even accumulate more if buying opportunities in the form of temporary price dips present the opportunity to do so. Events in the global financial system seem to be coming to a head, and central banks across the world seem to continue to buy gold in preparation for the coming financial storm. It seems only prudent that wise investors prepare themselves as well by ensuring that precious metals are an integral part of their portfolios. 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.
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The Week in Review – July 31st, 2012
Posted by Worldwide Precious Metals on Tuesday, July 31, 2012
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