Weekly Market Report 05/21/12

This week’s Market Report provides you with an update on the precious metal markets and I discuss last week’s Gold/Silver trading, which could be pivotal for the future direction of precious metals this year.

GOLD

Last week, while being a highly volatile 5 days, was truly exciting. This period could be the most pivotal for the future direction of Gold this year.  Dropping $47 per ounce from Monday to Wednesday and reaching a 2012 low of $1,526.70 per ounce, the market started its rally. Thursday, with heavy demand, Gold moved up $38.30 per ounce, for the highest one day increase in 2012. The rally continued on Friday, adding another $17 per ounce, closing the week at $1,591.90 per ounce, up $7.90 for the week on a very heavy volume of trading. The key resistance level to be surpassed for Gold to resume its bullish trend is $1,600 per ounce. Today, we saw Gold’s first attempt to break through that resistance level, reaching $1,599 per ounce before selling came in.

Much of last week’s volatility was caused by banks from the PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain) selling their Gold to meet a depositors run on their banks for Euros and U.S. Dollars. Depositors were lined up at their ATM’s at many banks in Greece and Spain. Greek and Spanish citizens are concerned about the solvency of their banks and the safety of their funds, combined with concerns of the possibility that their country could leave the euro-zone and/or default on euro denominated debt. 

The three most respected sovereign debt rating companies, Moody’s, Fitch, and Standard & Poor’s have continued to downgrade the debt and credit ratings of the PIIGS governments as well as many of their largest banks.  Unlike U.S. banks, many European banks keep Gold as part of their reserves, and have needed to sell that Gold to meet the currency demands of their depositors. Late last week the IMF announced that it would purchase $2.3 Billion worth of Gold to ease the pressure on the banks by providing for their currency needs.

2008 All Over Again

Last week reminded me of how the price of Gold reacted during the U.S. financial crisis in October of 2008. On Oct. 10, 2008 Gold was trading at $900.50 per ounce, and for the next two weeks the U.S. equity and bond markets declined by 25%, and the U.S. financial structure was on the brink of default.  By Oct. 24, 2008 the value of Gold had dropped 21% to $712.50 per ounce, before Congress announced passage of the TARP bail out legislation. The selloff in Gold was caused by a rush to liquidity, similar to what is happening with European banks right now.  In October of 2008, many financial professionals realized that TARP (a government bailout) and the printing of $800 billion, was a devaluation of the U.S. Dollar and that Gold was the only true safe haven asset. Demand increased, and Gold rallied back to $869.75 by year end.

SILVER

The volatility in the Silver price last week was more violent than Gold. Silver opened the week at $28.88 per ounce and traded down to a low of $26.73 on Wednesday, before sizeable demand hit the market.  Silver took its price direction from Gold last week, and reacted more dramatically with an 8% price spread.  On Friday, Silver continued to rally and closed the week at $28.71 per ounce, down $0.17 for the week. Long term major resistance for Silver is $30 per ounce. If we can surpass that price, the bullish sentiment will come back for many of the precious metal professionals and analysts.

G-8 Meeting at Camp David on the Weekend

Last Friday and Saturday, President Barack Obama hosted a meeting of G-8 leaders at the Camp David retreat in Maryland.  These leaders included the new French President Francois Hollande, German Chancellor Angela Merkel, and Britain’s Prime Minister David Cameron, along with representatives from Italy, Japan, Canada, and Russia.  The U.S., France, Italy, and Great Britain are embracing a renewed focus on growth, underlining the isolation of Germany’s Merkel, who maintained resistance to new spending.

G-8 leaders made some serious proposals and said in their final statement that “the right measures are not the same for each of us.” One of the proposals would include empowering the Eurozone’s €500bn rescue fund to directly recapitalize faltering European banks and commonly backed eurozone bonds. Chancellor Angela Merkel and French President Francois Hollande will seek to balance France’s desire to jump-start growth with Germany’s preference for spending cuts. Any agreement for monetary stimulus by the euro zone nations would be very bullish for precious metals.

PLATINUM

Last week Gold increased $7.90 per ounce, and we saw Platinum drop $12, closing the week at only $1,459 per ounce. Platinum’s discount to the price of Gold is currently at an unbelievable  $132 per ounce. This provides you with an opportunity to purchase Platinum at almost a 9% discount to Gold. A discount of this size rarely happens, so I have increased the recommended investment diversification for Platinum to 15% of your precious metal commitment. 

The Canadian 1oz Platinum Maple Leafs are the most active platinum trading vehicle, and because they are our #1 selling Platinum bullion item, we can offer them at only 5.75% over spot.  For a current quote on this item please visit: http://www.mintstategold.com/platinum-1/bullion-coins-and-bars/platinum-canadian-maple-leafs.html

Recommended investment commitment and diversification:

Precious Metal commitment: Minimum of 35% of investment capital

Diversification:  Gold 50%, Silver 35%, Platinum & Palladium 15%

Diversification includes 50% in long term investment quality rare coins and 50% short term bullion products

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