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The Week in Review – August 10th, 2012
August 10, 2012
The Olympics in London and the start of vacation season across Europe seem to have led to a relatively light week for news, especially out of Europe. The underlying problems facing the global economy remain however, despite the lack of reporting by the mainstream media.
The Department of Labor released jobless claims data a day early this week, thanks to a software glitch. Initial claims for unemployment fell unexpectedly last week, surprising economists who had expected an increase. Data feeds for unemployment are still suspect after July’s wildly inaccurate numbers, which were supposedly so erroneous due to unexpected changes in auto plant shutdowns.
News broke this week that the US Treasury, acting without Congressional authority, guaranteed over $2.4 trillion of money market funds, in relative secrecy and with US taxpayer money, following the Lehman Brothers bankruptcy. The Treasury had previously kept the names of the funds that participated in the program secret but Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette, filed a Freedom of Information Act request which exposed the details of the operation.
US wholesale inventories saw their largest drop in close to a year in June indicating that weak demand may be triggering a cut back in stocks at many businesses. A 1.4% decline in sales at wholesalers, the largest decline since March, 2009, surprised economists who were expecting a slight increase in sales. The decline adds credence to the fear that an economic slowdown, led by weakening consumer demand, is under way in the US.
Nouriel Roubini, nicknamed “Dr. Doom”, took to twitter on Monday to say “(The) 2013 perfect storm scenario I wrote on months ago is unfolding”. In May, Mr. Roubini said stalling growth in the US, the debt woes plaguing Europe, a slowdown in emerging markets, especially China, and conflict in Iran would all converge to create a “perfect storm” for the global economy in 2013. Jobs data released on Friday in the US showed economic growth was weak for the fourth straight month in the US; The debt crisis in Europe continues to drag on and there is, as yet, no solid solution proposed to end it; Data released this week out of China indicate that the economy there is slowing faster than expected; and conflicts, not just isolated to Iran, but across the whole Middle East, are on the rise.
The ongoing drought across the US may lead to the lowest crop yield in 17 years, with the crop estimated to be about 30% smaller than initial projections made at the start of planting. The corn most severely affected by the drought is that which is used for animal feeds, and there is little alternative means for feeding livestock as prices skyrocket since grasslands have also been scorched by the heat. Economists are forecasting higher meat, dairy and egg prices as the effects of the drought make their way through the food chain. The effects will be felt globally as well, as US exports of feed crops may be curtailed due to the crop losses. The weather is also wreaking havoc globally, not just in the US as rain in Brazil is damaging sugar crops, and hot weather in Russia is taking a toll on wheat crops there.
The recent decline in oil prices had the effect of reducing import costs last month and the resulting easing of inflationary pressures may give the US Federal Reserve slightly more leeway to implement another round of monetary easing. The pressure on the US Federal Reserve to embark on another round of Quantitative Easing has been growing of late as unemployment has continued to climb, the global economy has been cooling, and the disaster in Europe continues to grow. So far the Fed, led by Chairman Ben Bernanke, has resisted the pressure, but global events may be approaching the point where the Fed’s hand is forced.
Crude oil was at $92 a barrel on Friday, with the release of poor economic data out of China putting additional downward pressure on the price. The International Energy Agency and OPEC both lowered their demand forecasts for next year which may keep the downward pressure on oil prices as well.
The euro was dropping against the dollar again by the end of the week on weak economic data out of the Eurozone and news that the ECB may reactivate its bond purchasing program. The Japanese yen was up and down during the week but appeared to be set to close higher against the dollar for the week on Friday.
Friday to Friday Close
| August 3rd | August 10th | Net Change | |
|---|---|---|---|
| Gold | $1606.00 | $1619.00 | 13.00 + 0.81% |
| Silver | $27.80 | $28.06 | 0.26 + 0.94% |
| Platinum | $1410.00 | $1400.00 | (10.00) – 0.71% |
| Palladium | $580.00 | $582.00 | 2.00 + 0.34% |
| Dow Jones | 13096.17 | 13139.24 | 43.07 + 0.33% |
Previous year Comparisons
| August 12th 2011 | August 10th 2012 | Net Change | |
|---|---|---|---|
| Gold | $1740.00 | $1619.00 | (121.00) – 6.95% |
| Silver | $39.10 | $28.06 | (11.04) – 28.24% |
| Platinum | $1800.00 | $1400.00 | (400.00) – 22.22% |
| Palladium | $748.00 | $582.00 | (166.00) – 22.19% |
| Dow Jones | 11269.02 | 13139.24 | 1870.22 + 16.60% |
Here are your Short Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
|---|---|---|
| Support | 1580/1560/1540 | 27.20/27.00/26.50 |
| Resistance | 1610/16205/1640 | 27.80/28.40/29.00 |
| Platinum | Palladium | |
|---|---|---|
| Support | 1380/1350/1330 | 570/550/530 |
| Resistance | 1420/1450/1500 | 595/615/640 |
Volatility should be expected to continue. Barely mentioned by most US mainstream media outlets, the Financial Times of London broke a story this week stating that the Commodity Futures Trading Commission was set to drop its four year old investigation into the manipulation of silver prices. No other stories appeared, and CFTC Commissioner Bart Chilton was quick to say that the Financial Times story was “premature” and “inaccurate in many respects”. Ted Butler, one of the most outspoken voices regarding the manipulation of silver prices over the years, wrote a “must read” article at SilverSeek regarding the FT’s story called The CFTC Silver Investigation. The subject matter of Mr. Butler’s article is simply too extensive and too important to do it an injustice in an attempt to summarize it here. While skyrocketing corn and soybean prices are expected to produce cheap beef, pork and poultry prices near term as farmers sell animals to market early to cut down on feed costs, the long run picture will be an eventual inflation in the prices of these products, especially beef and pork, that may last as long as three years. That three year estimation of higher prices is predicated on the drought not advancing into next year’s growing season. As food costs escalate, consumer spending on durable goods might scale down further as a larger portion of consumer budgets are diverted to offset the higher grocery bill. China’s data released this week appears to show an economy that is slowing faster than originally projected, leading to speculation that the Chinese government may be acting sooner, rather than later, to take further monetary easing steps to try to re-start the flagging Chinese economy. The US stock market has been on an unsustainable rally, apparently trading on just the slightest glimmer of hope that the US Federal Reserve may initiate another round of Quantitative Easing. In Europe, the news stream seems to have tapered off; the Olympics have temporarily taken focus of the growing sovereign debt problems in the Eurozone. The Olympics will be coming to an end soon and Europeans will once again wake up to face the stark reality that there is still no solution to their spiraling debt crisis. More and more, it seems that the global financial system is becoming dependent on the machinations of the Central Banks. As these same Central Banks re-start their printing presses to try to stave off what seems to be becoming an eventual global bankruptcy, fiat currencies cannot possibly maintain any store of value. In the US, Congress has taken off for five weeks of vacation without making any progress on resolving the upcoming “fiscal cliff”. If left unaddressed, that “fiscal cliff”, promises to place severe economic stress on citizens and businesses in the United States. In this environment, maintaining ownership of your existing precious metals products in your portfolio, and even accumulating more product as you see any buying opportunities to do so may be viewed as a wise decision. Analysts such as Ted Butler are reiterating their belief that both gold and silver are setting up for a violent explosion to the upside in the near future as global events continue to lend support to the fundamentals that should support higher precious metals prices. Be prepared to move swiftly, yet without overextending yourself, should prices begin to skyrocket as these analysts expect. 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 – August 10th, 2012
Posted by Worldwide Precious Metals on Friday, August 10, 2012
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