PPMI Week in Review

The Week in Review via PMI Limited
1. What an incredible week! The US Federal Reserve more than lived up to everyone’s expectations,
announcing a new round of Quantitative Easing, and going even further to state that
this one would consist mostly of Mortgage Backed Securities, would be open ended, and
would continue even after the economy showed signs of true recovery.
2. The US Consumer sentiment reading for early September is at its highest level in four
months, despite a rise in consumer prices and a drop in factory production. The Thomson
Reuters/University of Michigan report cautioned that the upswing was likely temporary and
due to a bounce following the presidential candidate conventions. Expectations that the Federal
Reserve might “come to the rescue” with additional easing may have boosted consumer
confidence as well.
3. Initial claims for state unemployment hit a two month high last week, though some of the
increase is being attributed to the remnants of hurricane Isaac, which continued to douse
parts of the US. Rising food and energy costs pushed wholesale inflation figures higher as
well sparking fears of inflation pressures. Higher costs to manufacturers may slow down hiring
or trigger a new round of factory layoffs if they continue
4. The Middle East literally exploded in violence this week, nearly all of it aimed at the U.S.
An obscure and apparently poorly made anti-Islam film triggered riots in Libya which resulted
in the death of four Americans, including the US Ambassador to Libya and two former
Navy Seals who were acting as a security detail. The protestors lit the American consulate in
Libya on fire. Other countries, including Germany and the U.K. are being drawn into the
fray as their embassies, in multiple countries, also faced angry protestors following prayers
on Friday.
5. In Asia, Japan cut its economic outlook for the second month in a row and went further,
warning that “Japan’s economic recovery appears to be pausing due to the global slowdown.”
India’s Prime Minister unveiled a controversial plan to try to head off a credit downgrade this
week, increasing the price of diesel in India by 14 percent. Taimur Baig, Chief Economist at
Deutsche Bank, told CNBC on Friday “I think this [fuel hike] is symbolically quite important.
Though it will not have a huge impact on the subsidy bill, investors will react positively
as they had given up hope of reforms from this government.” Indian stock markets rallied on
the news.
6. In the US, the federal budget deficit topped $1 trillion for the fourth year in a row according
to the Treasury Department. The fact that the Obama administration has run deficits in excess
of $1 trillion dollar every year it has been in office is weighing down the incumbent
President’s election hopes. Mr. Obama said in 2009 that he would cut the deficit in half.
7. Europe remains at the center of a financial storm. Spain continues to face mounting pressure
from Eurozone finance ministers to formally request a bailout now that the European Central
Bank has unveiled its bond buying program. In Greece, the International Monetary Fund
Managing Director, Christine Lagarde, said lenders may agree to some sort of time extension
for the debt straddled country, saying “There are various ways to adjust: time is one and that
needs to be considered as an option” at a news conference following a meeting of Eurozone
finance ministers in Cypress.
8. Crude oil pushed its way back into the upper $90s once again as global demand projections
rose and the market digested the news that the US Federal Reserve was embarking on an
open ended round of Quantitative Easing. The unrest erupting across the Middle East may
work to keep upward pressure on oil prices as well as concerns of a supply disruption may
begin to mount.
9. The euro pushed higher against the dollar this week. The announcement by the US Federal
Reserve on Thursday that they would be doing an open ended round of quantitative easing
helped push the dollar lower against multiple currencies. The Japanese yen hit a 7 month
high against the dollar this week and rumors were abounding that Japan would intervene
once again to try to push exchange rates lower.
Friday to Friday Close
September 7th September 14th Net Change
Gold $1738.00 $1772.00 34.00 + 1.96%
Silver $ 33.70 $ 34.65 0.95 + 2.82%
Platinum $1590.00 $1715.00 125.00 + 7.86%
Palladium $ 655.00 $ 695.00 40.00 + 6.11%

Dow Jones 13306.64 13565.73* 259.09 + 1.95%
Previous year Comparisons
Sep 16th 2011 Sep 14th 2012 Net Change
Gold $1812.00 $1772.00 (40.00) – 2.21%
Silver $ 40.80 $ 34.65 (6.15) – 15.07%
Platinum $1820.00 $1715.00 (105.00) – 5.77%
Palladium $ 730.00 $ 695.00 (35.00) – 4.79%
Dow Jones 11509.09 13565.73* 2056.64 + 17.87%
*Current at time of writing
Here are your Short Term Support and Resistance Levels for the upcoming week.
Gold Silver
Support 1750/1725/1700 34.30/34.00/33.80
Resistance 1780/1800/1820 35.00/35.50/36.00
Platinum Palladium
Support 1680/1650/1600 685/660/640
Resistance 1720/1740/1775 710/725/750

 
Volatility should be expected to continue and perhaps increase dramatically. This week, even
more so than last, has shown why accumulating additional precious metals product during quiet
periods like we’ve seen for much of this year might be considered a wise decision when viewed
through the long-term lens that should be used when investing in precious metals. The US Federal
Reserve’s announcement that this latest round of Quantitative Easing would be open ended,
and would continue on even after the economy shows signs of an accelerating recovery sent precious
metals prices climbing higher again. It is literally, “QE to infinity” just as Jim Sinclair has
been predicting for so long, the race to debase fiat currencies seems to have begun in earnest. On
Wednesday, the German Constitutional Court announced that the European Central Bank’s plan
to perform Quantitative Easing on the euro was indeed legal. Japan is expected to intervene in
an effort to debase its own currency as the dollar continues to collapse, driving up export costs
and further slowing Japan’s already faltering economy.

 

James Turk, one of our favorite precious
metals analysts, said in an interview with King World News this week “Keep accumulating gold
and silver on a cost averaging basis because the currency cliff is fast approaching. I would add
there is a lot of money out there that is waiting for a pullback, but given what is happening
around the world, I don’t think there is time to wait for a pullback.” Mr. Turk continued, saying
“But what the Fed always tries to do is control expectations. They place greater emphasis on the
notion that inflation is not a result of how much currency is actually in circulation or how rapidly
the quantity of currency grows, but rather, whether people think inflation will worsen. Like
many things that come from central banks, it is a silly notion. It is another one of those things
that seem okay in theory and the halls of academia, but never works out in the real world. The
reason, as Milton Friedman and others have pointed out, is that a currency’s purchasing power
will be eroded if the quantity of money increases… and QE – or whatever the Fed chooses to call
it – does exactly that.” In the US, now that QE to infinity is a reality, the focus should shift back
to the looming fiscal cliff which the US Congress has done nothing to address. Major media outlets
have paraded guests on the airwaves all year saying allowing the US to “fall off the fiscal
cliff”- when Bush era tax cuts expire at the end of the year – would drag the struggling US economy
right back into recession. Now that the hour is approaching and the US Congress has made
zero progress on addressing the issue, these same pundits are saying they expect absolutely nothing
to be done by the end of the year, leaving the issue to be addressed next year.

 

As the rhetoric
ramps up during the election season, we expect both consumer confidence and the approval rating
of the US Congress to plummet. As central banks across the globe embark on a coordinated
plan to debase their currencies, and the stock markets in each respective country surge in elation
over the sheer amount of money printing taking place, precious metals are once more in the spotlight
as the only viable currency that actually has, and maintains, an actual physical value, not
just an arbitrary number printed on a piece of paper, backed by only government promises. Now,
more than any other, would seem to be the time to be an owner of physical precious metals. 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.

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