Weekly Market Report 7/25/11

| July 25 2011

GOLD

July continues to be a very profitable month for Gold investors, now up $126.10 (8.47%) since July 1^st. Gold is trading at $1,613.80 this morning after reaching $1,623.40 per ounce (an All-Time high) overnight in Asia. The main factor affecting the price of gold this past week was Debt, both U.S. and European. The Eurozone countries were able to successfully deal with the short term debt problems, while the U.S. debt ceiling problems worsened. More information on what would happen if the debt limit isn’t raised and its effect on precious metal prices is below.

Last week, the World Gold Council shared three insightful facts. First, that in the first three months of 2011, India and China now account for 58% of global physical gold demand. Second, that setting a new All-Time high price of Gold in July surprised traders because the gold market is usually quiet in July. India Gold buyers have traditionally bought gold in seasonal patterns, dictated by festivals such as Akshaya Tritiya in May and Diwali in September, and the wedding season, which runs from September to December. Third, that the total central banks’ net purchases of Gold year-to-date have already surpassed the level seen in the whole of 2010. Emerging markets and banks continue to be the main driving force for Gold, led this quarter by Mexico’s 100-tons increase in its reserves

SILVER

If Gold owners are happy with July’s return on their investments, then Silver owners are ecstatic. Silver closed above the critical $40 per ounce value at $40.12 per ounce on Friday, up $6.41 (19.01%) since July 1st. Staying above the important $40 psychological level is a major step for Silver’s journey back to the recent April 25th high of $49.84.

On Friday, July 22nd, the Hong Kong Mercantile Exchange (HKME) started trading Dollar-denominated silver futures contracts for Chinese citizens. This development grants Asian investors direct access to the metal and will blunt the U.S. dominance in silver-bullion trading. This is in direct competition to the Chicago Mercantile Exchange (CME), currently the largest Silver trading exchange. Much of the motivation for the Dollar-denominated Silver futures trading at the HKME came from the actions of CME, which unilaterally raised margin requirements on silver by nearly 100% in a mere eight days in April 2011 — after silver prices had increased roughly 150% between late August and the end of April. The CME action helped cause silver prices to plunge by 30% from its recent highs.

LEGAL UPDATE ON THE 1933 $20 SAINTS

The government on Wednesday won the first round of a battle over the ownership of ten 1933 $20 Gold Saint Gaudens, now worth an estimated $75 million. A U.S. District Court jury decided, after five hours of deliberation, that the U.S. Treasury had properly taken possession of the $20 double eagles, which a Philadelphia family had forfeited after discovering them in the safe deposit box of a deceased family member.

This Week’s recommended commitment and diversification:

Precious Metal commitment: Minimum of 33 1/3% of investible capital (increased due to the Debt Ceiling issue)

Diversification: Gold 60%, Silver 40%

Diversification includes long term investment quality rare coins and short term bullion products.

RARE COINS REPORT

The next major numismatic event will be the American Numismatic Association’s World’s Fair of Money Convention in Chicago from August 15th to 20th. This is the largest coin and precious metals trade show and convention of the year. I’ll be flying to Chicago on August 11th to look at some possible purchases, so if you haven’t already updated your rare coin Want List with me, please do it as soon as possible and email me a copy by August 5th. I am hoping to purchase two large collections of U.S. Gold and Silver Dollars while I’m in Chicago.

What happens if Congress does not increase the U.S. Debt Ceiling by August 2^nd?

Before I give my educated guess at what will happen if the Congress doesn’t raise the U.S. Debt Ceiling by August 2nd, let me provide the following information:

First, the numbers…

A study by the Bipartisan Policy Center (BPC) found that the United States is likely to hit the debt limit sometime between August 2 and August 9. The BPC study projects that there will be $172.4 billion in federal revenues in August, and $306.7 billion in authorized expenditures, leaving a deficit of $134.3 Billion.

The following is a breakdown of the $306.7 Billion in authorized Federal Expenditures:

$29B Interest on Federal Debt

$49.2B Social Security

$50B Medicare & Medicaid

$12.8B Unemployment Insurance Benefits

$2.9B Active Duty Troop pay

The BPC believes that the above has the highest priority, leaving $28.5 Billion for the following..

$93.8B Government Agencies (Department of Justice, Labor, Education, Commerce, EPA, HHS, etc)

$31.7B Defense Vendors

$14.2B Federal Salaries + Benefits

$ 9.3B Food Stamps and Welfare

$ 6.7B Housing and Urban Development

$ 3.9B IRS Refunds

$ 2.9B Veterans affairs programs

$ 0.3B Small Business Administration

Second, the political background…

Any legislation to raise the Federal Debt Ceiling must pass the House of Representatives and the Senate and be signed by the President before becoming law. The House of Representatives has 433 members, 240 are Republicans and 193 are Democrats. 217 Congressmen must vote in favor of the legislation for passage. In the Senate there are 51 Democrats, 47 Republicans and 2 Independents, therefore 51 Senators need to vote yes for passage. The right wing of the Republican Party (Known as the Tea Party) has 63 Congressmen and 4 Senators who are members of the Tea Party Caucus or supporters. The Tea Party members are the most vocal regarding the reasons for not supporting the lifting of the Federal Debt Ceiling.

Third, what I believe the real problem is all about…

Over the past few weeks, the legitimate differences between President Obama and Republican leadership have been a moving target. I believe that an agreement on increased revenue and spending cuts has been reached; the two deal-breaking issues are now centered around the next election, and not the next generation.

Many of the 60+ Tea Party Republican Legislators are putting political pressure on Speaker Boehner to not raise the debt ceiling
The timing: President Obama wants a $2.4 Trillion increase in the debt ceiling to take us past the 2012 Elections, and Speaker Boehner wants a $1 Trillion increase which would take us to the middle of 2012 and make this an election issue.

Fourth, What I believe will happen if the Debt Ceiling is not lifted by August 2^nd

1^st What I believe will happen as we approach the August 2^nd deadline:

The value of the Dollar will drop on the world’s currencies markets
The U.S. Stock Market will drop more and more through the coming week.
The Senate and the House will propose Ceiling raising legislation for political reasons.
Both President Obama and Speaker Boehner will be on the media playing the blame game.
High quality AAA rated Corporate Bonds will rally (IBM, Exxon, etc.)
Gold & Silver prices will continue to move higher as we approach the deadline.
If the President signs a bill lifting the debt ceiling before Aug. 2nd we will see a correction in Gold and Silver.

2^nd What could happen on August 2^nd and beyond if the debt ceiling deadline is missed:

Unless the U.S. Treasury starts selling assets to make up the August deficit, our government will start to shut down. Federal employees will be put on furlough; only vital employees will continue to be paid.
The Federal Reserve will offer to purchase assets from the U.S. Treasury to help offset the deficit.
The Treasury will pay the interest on U.S. securities to avoid default
The Treasury will send out Social Security, Medicare, Medicaid and Active Duty Troop checks
Moody’s and Standard and Poor’s will downgrade U.S. debt
Gold and Silver would continue to increase as a safe haven investment

A few additional comments if the debt ceiling is not increased...

The longer the crisis drags on, the worse the problem will get.

Depending on the outcome of the Debt Ceiling issue, it could make or break the Tea Party movement.

All statements, opinions, pricing, and ideas herein are believed to be reliable, truthful and accurate to the best of the Stuppler & Company’s knowledge at this time. Stuppler & Company disclaims and is not liable for any claims or losses which may be incurred by third parties while relying on information published herein. Individuals should not look at this publication as giving finance or investment advice or information for their individual suitability. All readers are advised to independently verify all representations made herein or by its representatives for your individual suitability before making your investment or collecting decisions

Categories: Weekly Market Report