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The Week in Review – July 6th, 2012
July 6, 2012
This week was a light week for markets due to multiple holidays across the globe, but a heavy week for news, and little of it was good.
Last month was the worst June for retail sales in three years, reinforcing fears that consumer spending is dramatically slowing down.
Employment data for June was disappointing, exactly as expected. Just 80,000 jobs were added in June, making the second quarter the worst three month period of employment data in two years. The unemployment rate was maintained at 8.2%. Jeff Savage, regional chief investment officer for Wells Fargo Private Bank said, “What a disappointing number. This was kind of disastrous. We’re not even keeping up with demographics at this point. This is not going to be liked in the markets.” The continued sluggishness in the US jobs market means that the likelihood of additional quantitative easing may be increasing.
In a story that barely got any attention from major media outlets, the Federal Energy Regulatory Commission filed a petition in federal court in Washington asking the court to order the bank to explain why it would not comply with a subpoena issued requesting 25 internal emails as part of the agency’s investigation into whether or not…wait for it… JPMorgan manipulated electricity markets in California and throughout the Midwest. JPMorgan insists that the emails are protected under the attorney-client privilege. In the midst of a rash of scandals and manipulation schemes by bank after bank, perhaps the time has now come for the CFTC to finally act on its own 4 year old investigation into JPMorgan’s manipulative actions in the silver market.
Deutsche Bank is now apparently the next bank up in the crosshairs of the LIBOR scandal. German markets regulator BaFin has announced a “special probe” of the bank as part of its wider investigation into the manipulation of LIBOR according to a Reuter’s report citing “two people familiar with the matter”. BaFin declined to comment on whether it was specifically investigating Deutsche Bank, and instead gave a non-committal “We are making use of our entire spectrum of regulatory instruments, so far as this is necessary.”
Let the printing begin! The European Central Bank cut interest rates just as expected on Thursday, dropping a quarter point to a record low 0.75%. The Bank of England announced another round of quantitative easing, and the People’s Bank of China surprised the global financial markets by cutting interest rates again for the second time in as many months. The surprise move by China has many wondering if this is advance notice that the data due to be released out of China next week might not be as good as analysts were hoping.
The positive impact of the joint announcements by the ECB, the BoE and the PBC discussed above lasted all of about 25 minutes. On Friday, Spain’s borrowing costs on 10 year government bonds pushed their way above 7 percent again. In contrast, German government bond yields dropped lower with their two year yield actually turning negative at one point. Christine Lagarde, Managing Director of the International Monetary Fund, said in Tokyo on Friday “In the last few months, the global outlook has been more worrying for Europe, the United States and large emerging markets. The IMF’s forecasts are likely to be lower than our previous forecasts.”
Italy’s bond yields were climbing higher on Friday as well, though not nearly as steeply as Spain’s. 10 year Italian bond yields hit 6.01 percent on Friday, essentially ignoring Thursday’s central bank announcements as the market apparently feels that the steps being taken now still won’t be enough to pull Italy and Spain, back from the brink of their sovereign debt woes.
Crude oil was solidly in the middle $80 a barrel range on Friday, dropping from its $89 price the previous day. A supply shortage as the Iranian sanctions took effect on July 1 failed to move the price higher as the continued weakness in Europe maintained the downward pressure on the oil market.
The euro was sent lower again this week after the European Central Bank announced it was cutting rates to record lows. The euro reached a 2 year low against the US dollar on Friday after the US jobs report was released. The Japanese yen traded basically sideways for the week.
Friday to Friday Close
| June 29th | July 6th | Net Change | |
|---|---|---|---|
| Gold | $1604.00 | $1580.00 | (24.00) – 1.5% |
| Silver | $27.60 | $27.00 | (0.60) – 2.17% |
| Platinum | $1447.00 | $1445.00 | (2.00) – 0.14% |
| Palladium | $582.00 | $578.00 | (4.00) – 0.69% |
| Dow Jones | 12880.09 | 12731.98* | (148.11) – 1.15% |
Previous year Comparisons
| July 8th 2011 | July 6th 2012 | Net Change | |
|---|---|---|---|
| Gold | $1541.00 | $1580.00 | 39.00 + 2.53% |
| Silver | $36.52 | $27.00 | (9.52) – 26.07% |
| Platinum | $1730.00 | $1445.00 | (285.00) – 16.47% |
| Palladium | $778.00 | $578.00 | (200.00) – 25.71% |
| Dow Jones | 12657.20 | 12731.98* | 74.78 + 0.59% |
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
|---|---|---|
| Support | 1575/1550/1530 | 26.80/26.50/26.20 |
| Resistance | 1600/1625/1640 | 27.50/28.00/28.20 |
| Platinum | Palladium | |
|---|---|---|
| Support | 1440/1415/1390 | 570/560/540 |
| Resistance | 1480/1500/1550 | 600/625/640 |
Volatility should be expected to continue as the situation in Europe becomes more desperate. The European Union is fast running out of options to try to resolve its mounting sovereign debt woes. Nouriel Roubini, told Germany’s Handelsblatt on Friday that he gives the euro another three to six months. After that, he says, “Then Italy and Spain will lose access to capital markets.” Spain and Italy both saw little relief from the coordinated moves of several central banks this week. Spanish bond yields were back above 7 % and Italy’s were above 6% on their 10 year bonds. With manufacturing numbers down in the US, the services sector seeming to be contracting, jobs numbers that were abysmal, and declining consumer spending, economists feel that there is ever increasing pressure on the US Federal Reserve to unleash another round of quantitative easing. Many economists and analysts feel that the Fed may announce additional QE at their next meeting in August. China’s surprise rate cut has many speculating that the mass of data which is due to be released next week out of China may be much worse than previously expected, perhaps indicating a larger than expected economic slowdown may be taking place. The slew of scandals surrounding the world’s largest banks may finally give the CFTC the opening that we hope they have been looking for to come forward with the results of their dusty 4 year old investigation into JPMorgan’s manipulation of the silver market. The CFTC has been remarkably close-mouthed about their investigation, but now that the accusations are flying regarding manipulations in other markets, perhaps they will finally have all the evidence they need to move forward and release the details. As the LIBOR scandal grows and additional banks are implicated, it is our hope that the balance has tipped in the regulators favor and that the manipulative schemes which apparently are standard practice at these big banks finally are exposed and ended. John Embry, Chief Investment Strategist of Sprott Asset Management, said in an interview with King World News this week: “I’m fascinated by this whole Barclays situation, in the sense that they have been accused, and have admitted as such, that they have been manipulating Libor. This actually affects about $360 trillion worth of the world’s financial transactions. It’s actually a shocking thing when you think about it, but I like to relate it to the gold and silver markets. These people messed around with Libor, and there’s some suggestion that the Bank of England might have thought this was a good idea when things were looking particularly dark in late 2008. I mean people who don’t think that gold and silver are manipulated really better give their heads a shake. The simple reason for this is that gold and silver are the canaries in the coal mine when it comes to lousy monetary policy. When gold and silver start going up, it’s blowing the whistle on bad monetary policy.” Make sure you are prepared to act swiftly on any price dips that may briefly appear to add more product to your portfolio as global fiat currencies continue to lose their value. As the global economy continues to slow, debt levels across the globe continue to mount, and the levels to which big banks go in order to manipulate exotic paper products are unveiled, physical precious metals appear to be returning to the realm of “real money”. 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 6th, 2012
Posted by Worldwide Precious Metals on Friday, July 6, 2012
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