PPMI Week In Review

March 16, 2012

The Week in Review

1. Initial claims for unemployment in the US fell back to four year lows last week leading many to cite that this was further proof that the US economic recovery was picking up steam. Stubbornly high oil prices however have led to the biggest increase in producer costs in five months which may lead manufacturers to start implementing cost cutting measures again, including layoffs. There is also growing concern that the unusually warm winter this year may have shifted some of the demand for manufactured products forward as consumers in the northern US were able to get out and make purchases in the warmer weather.
2. Consumer sentiment dropped according to the Thomson Reuters/University of Michigan’s preliminary reading for early March. The decline appears to be due mainly to rising gasoline costs which are starting to squeeze the wallets of consumers who are cutting back on discretionary spending as a result. US consumer prices increased the most in 10 months in February according to the Labor Department’s Consumer Price Index.
3. Details of the next Greek bailout have been trickling out of Europe this week, with the European Financial Stability Facility reportedly contributing 109.1 billion euros. The International Monetary Fund will also contribute 28 billion euros which it will pay out to the embattled country over four years. According to Klaus Regling, chief executive of the EFSF, 48 billion of the 109.1 billion euros will be used to recapitalize Greek Banks, leaving 61 billion euros left for “normal program financing”.
4. Jobs in the Eurozone continue to be difficult to find according to Eurostat, the EU’s statistics office. Francois Cabau, an analyst at Barclays Capital, said in a research note, “Looking ahead, our hiring intention indicators continue to show ongoing weakness in all countries apart from Germany where it has stabilized at fairly high levels. In other countries, the pace of deterioration has continued to be fairly steep since the beginning of the year and therefore does not bode well for future employment prospects.”
5. Delinquency notices for US homeowners rose 1 percent in February according to a report from RealtyTrac. Signs are beginning to appear that the backlogs of foreclosures that have been sitting in the system as a result of the “robo-signing” scandal are beginning to move through the process once again. This may result in another sudden dip in housing prices as these distressed properties go on the market, driving prices for surrounding properties down further once again.
6. On Tuesday, the US Federal Reserve released its policy statement this week reiterating its intention to keep interest rates low through 2014. There was one dissenter to that decision this time however and continued high oil prices may force the Fed’s hand into an earlier rate increase if inflation targets are exceeded as a result. The Fed also released the results of its “Stress Test” of financial institutions this week. It was forced to release them earlier than it had desired by JP Morgan’s early announcement that it would increases its dividend. That
announcement was effectively JP Morgan thumbing their nose at the Fed and announcing
early that it had passed its “stress test”.
7. On Wednesday, Fitch ratings agency revised their outlook on the UK’s AAA credit rating
from “stable” to “negative” citing “very limited fiscal space to absorb further adverse
economic shocks.”
8. Crude oil remained in the mid-$100 a barrel this week despite headlines and rumors that the
US and UK had reached an agreement to release oil from their strategic reserves. Continued
geopolitical tensions in the Middle East are expected to maintain upward pressure on prices.
9. The euro dropped sharply against the dollar again this week and the Japanese yen continued
its ongoing plummet as well.

Friday to Friday Close
March 9th March 16th Net Change
Gold $1710.00 $1655.00 (55.00) – 3.22%
Silver $ 34.20 $ 32.60 (1.60) – 4.68%
Platinum $1682.00 $1675.00 (7.00) – 0.42%
Palladium $ 707.00 $ 700.00 (7.00) – 0.99%
Dow Jones 12922.02 13247.42* 325.40 + 2.52%
Previous year Comparisons
Mar. 18th 2011 Mar. 16th 2012 Net Change
Gold $1416.00 $1655.00 239.00 + 16.88%
Silver $ 35.06 $ 32.60 (2.46) – 7.02%
Platinum $1723.00 $1675.00 (48.00) – 2.79%
Palladium $ 731.00 $ 700.00 (31.00) – 4.24%
Dow Jones 11858.52 13247.42* 1059.98 + 2.53%
* Current at time of writing

Here are your Short Term Support and Resistance Levels for the upcoming week.
Gold Silver
Support 1640/1625/1600 32.10/31.60/31.00
Resistance 1650/1680/1720 32.75/33.00/34.50
Platinum Palladium
Support 1660/1625/1600 690/660/640
Resistance 1700/1750/1780 710/725/750

Volatility should be expected to continue. Friday was a “Quadruple Witching Hour” day, meaning it is options expiry day. Why is this important? With uncanny regularity around options expiry days, there seems to be a downward manipulation event in precious metals prices. This week’s price smash down appears to have been just that; another manipulation event carried out on yet another options expiry and under additional cover of some mildly positive economic news out of the US. Wise investors appear to have viewed it as just another buying opportunity to add more product to their portfolios on what looks to be another manufactured and temporary weakness. It is important in these volatile times to deeply analyze all of the news that is available, not just the headlines that the media pundits repeat on television. The fundamentals that have been driving precious metals higher appear unchanged. Inflationary pressures are on the rise in the US, triggered by stubbornly high oil prices. World markets seem to be viewing the fact that Greece, riddled by debt, was still able to secure yet another bailout loan, increasing their debt load further in the end game, as a positive event for some reason. Unemployment in the Eurozone, with the lone exception of Germany, is running rampant and unemployed consumers mean further economic contractions. The situation in the Middle East remains unresolved, and opinions are starting to circulate that the sanctions against the Iranian oil industry may actually trigger a renewed “gold standard” in the region. The thought process is that Iran, cut off from its ability to secure international financing, will simply begin accepting gold as payment for its oil. The tension in the Middle East also is leading to sustained higher oil prices, leading to rumors that the US and UK might release oil from their strategic reserves. Both countries were quick to deny the rumors, but the wild price swings surrounding the unsubstantiated report show just how much emotion, fear, and media spin are driving markets these days instead of true fundamentals. This week’s manipulation has given the spin factory more ammunition to talk down the prices of precious metals, but the facts remain that, globally, sovereign debt is completely out of control. The US is facing another massive budget deficit this year. The best that could be said about president Obama’s newly revealed budget this week was that it would add less to the nation’s debt (only an additional $6.4 trillion in deficits between 2013 and 2022) than simply extending existing policies. China, long touted as the recovery engine that has been keeping things afloat as Europe and the US struggle, has seen its own economy beginning to slow down. With Europe still mired in an effective recession and the US still in only a fledgling recovery, a rapid deceleration in China’s economy may be the tipping point that sends the world back to “The Great Recession” part two. There seems to be a growing euphoria in stock markets. One analyst described the recent gains as “panic buying”, which does not bode well for things to come in stocks. If the usual patterns hold true, when the euphoria ends and the very real and abysmal state of global finances reassert control over the market, we may just see an explosion in precious metals prices the likes of which no one has ever witnessed. 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. Never overextend your ability to maintain ownership of your precious metals over the long term.
Trading Department – Precious Metals International, Ltd.
This is not a solicitation to purchase or sell.
© 2012, Precious Metals International, Ltd.

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