PPMI Week In Review

June 8, 2012

The Week in Review

1. What a week for news! Europe, led by Spain, was the driving force behind markets this
week for the most part. Once again, we will be going into the weekend with a slew of important
data set to be released out of Europe and Asia.

2. Initial claims for unemployment fell by 12,000 last week, the first time claims have declined
since April. Despite the drop, the four week moving average for new claims edged higher by
1,750 thanks to an upward revision in the previous week’s data. The four week moving average
is considered a better read on the state of the jobs market than the weekly claims data so
any increase there is still cause for concern.

3. In testimony before the US Congress’ Joint Economic Committee (JEC) on Thursday, Federal
Reserve Chairman Ben Bernanke seemed to be taking the same stance as Mario Draghi,
of the European Central Bank. Last week, Mr. Draghi told European parliament members
that it is time for politicians to essentially step up and come forward with their own solutions
to the crisis at hand. This week, Bernanke echoed that sentiment, telling the JEC “It would
be much better to have a broad-based policy effort addressing a whole variety of issues. I
leave the details to Congress, who have considered many of these issues.” Chairman Bernanke
reiterated that the Fed stands ready to act if the economy slows further, but failed to
give an outright guarantee that more Quantitative Easing was on the way.

4. Spain continues to struggle with its banking sector and is widely expected to formally request
aid from the European Union as early as Saturday. In contrast to Greece, whom much of the
Eurozone seems willing to let go of, Spain virtually has the Eurozone by the throat as a result
of the sheer size of its economy. Spain, which has the fourth largest economy in the Eurozone,
is being described as “too big to fail, too big to bail” at this point. On Thursday Fitch
Ratings Agency cut Madrid’s sovereign credit rating by three notches, citing the Spanish
banking sector’s exposure to failing property loans and contagion from Greece’s debt crisis.
Fitch said that the cost to recapitalize Spain’s banks could be as high as 100 billion euros,
while the International Monetary Fund estimates the figure to be a “mere” 50 billion.

5. Tension is mounting in Greece as the June 17th elections deadline approaches. The Greek
economy shrank by 6.5% during the first quarter as crippling austerity measures, required as
a condition for receiving the “troika’s” bailout money, continued to take a toll on tax revenues.
Wage cuts and layoffs carried out as a result of the austerity measures seem to have
done the exact opposite of what European leaders envisioned when they established those
measures. While the measures have worked to lower government spending, they have also
caused consumers to limit their spending in fear of losing their jobs, and the public sector
layoffs have added to the unemployment woes in the country. Both factors have worked to
seriously reduce tax revenues for the Greek government which was already plagued by tales
of corruption in its tax collection efforts, making it more difficult for the government to reduce
its budget gap.

6. China surprised economists and markets alike on Thursday when it cut its benchmark lending
rates by 25 basis points. Most economists had expected a cut in the required reserve ratio for
banks instead of a cut in interest rates. The move is China’s first rate cut in four years and
many feel that the move may indicate that the industrial production data, which is due out
Saturday, may show a larger economic slowdown in China than previously projected. According
to Donna Kwok, economist for Greater China, in an e-mail sent to CNBC, “The discount
that banks were previously allowed to offer on lending rates relative to the benchmark
rate has been doubled, from 10 percent to 20 percent, which means that the lowest official
lending rate has effectively been cut by 63 basis points, not just 25 basis points.”

7. Crude oil continued its run in the low $80 a barrel range this week, held down by perceived
demand weakness in both Europe and Asia. The start of the summer driving season may help
send prices higher soon, however.

8. The euro made an attempt to claw its way higher against the dollar this week, but Spain appears
set to be a major headwind against it next week. The yen plunged against the dollar
this week on poor Japanese economic data.

Friday to Friday Close
June 1st June 8th Net Change
Gold $1620.20 $1591.00 (29.00) – 1.79%
Silver $ 28.45 $ 28.50 0.05 + 0.18%
Platinum $1445.50 $1425.00 (20.00) – 1.38%
Palladium $ 612.00 $ 611.00 (1.00) – 0.16%
Dow Jones 12118.57 12480.52* 361.95 + 2.99%
Previous year Comparisons

Jun 10th 2011 Jun 8th 2012 Net Change
Gold $1528.00 $1591.00 63.00 + 4.12%
Silver $ 36.32 $ 28.50 (7.82) – 21.53%
Platinum $1830.00 $1425.00 (405.00) – 22.13%
Palladium $ 815.00 $ 611.00 (204.00) – 25.03%
Dow Jones 11951.91 12480.52* 528.61 + 4.42%
* Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.

Gold Silver
Support 1580/1550/1530 28.00/27.60/27.20
Resistance 1600/1625/1640 29.00/29.50/30.00
Platinum Palladium
Support 1415/1400/1390 600/580/550
Resistance 1450/1500/1540 620/640/680

Volatility should be expected to continue and may increase dramatically if data out of Europe and
China continues to disappoint. This weekend it is vitally important to monitor the news with
China’s manufacturing, retail and inflation data due to be released and a widely expected announcement
out of Europe regarding recapitalization of Spain’s troubled banking sector. According
to Reuters, Five senior EU and German officials, speaking on condition of anonymity,
said that deputy finance ministers from the single currency area would hold a conference call on
Saturday morning to discuss a Spanish request for aid, but that no figure for the amount of assistance
required has yet been decided on. The officials also said that following that conference
call, the Eurozone’s seventeen finance ministers would hold a separate call to discuss approving
the request and that “the announcement is expected for Saturday afternoon.” The European
Commission’s spokesman on economic affairs said that Spain had made no request for aid and
that he would not confirm that a conference call was planned for Saturday. The spokesman went
on to say “If such a request were to be made, the instruments are there, ready to be used, in
agreement with the guidelines agreed in the past.” Despite the denials, it is widely expected that
the calls and accompanying announcement will take place this weekend to try to calm markets
ahead of Greek elections on June 17th, the outcome of which is still totally uncertain. If the leftist,
anti-bailout parties in Greece gain a decisive victory in the June 17th elections then the odds
that Greece will exit the Eurozone will increase dramatically and European officials seem to be
concerned that if there is no solution to Spain’s banking sector woes prior to that, panic may ensue.
Elections take place this Sunday, and again on June 17th in France and it is widely expected
that Francois Hollande may see his ability to rule reinforced if the left takes control of the lower
house of National Assembly. Mr. Hollande has been widely critical of the austerity measures
that are being forced on the peripheral Eurozone countries in exchange for bailout funds and the
data coming out of Spain and Greece appear to be reinforcing his view that pro-growth policies
would be more effective at boosting economic output in those countries than the severe austerity
measures currently under way. In a sign of just how dysfunctional the stock market has become,
stocks appeared to be set to post their best weekly gain for the year solely on the rumors out of
Europe that the EU might agree to bail Spain’s banks out. Amid the backdrop of a slow-down in
China, the very real possibility of a Greek exit from the euro, mounting debt and the looming US
“Fiscal Cliff” that apparently even former president Bill Clinton even agrees is not being taken
seriously enough by the US Congress, stock markets climb on the hope that Europe can print up
some more money to bail out its fourth largest economy? That is sheer idiocy. The day may
soon come, and Europe may just be the trigger that sets it off, when Central Banks simply can’t
print enough money to paper over the debt woes of their respective nations. When that day arrives,
paper money won’t even be worth the cost of the ink used to print it up and precious metals
prices might be nothing short of astronomical. Pay close attention to the news this weekend
and be prepared to act as we move into next week. 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.

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