Weekly Market Report 12/05/11

GOLD

Last week was excellent for Gold investors with the price up $65 (3.7%), closing at $1,751.30 per ounce on Friday.  Gold trading last week ranged from a low of $1,686 to a high of $1,767 per ounce on excellent volume.  The Central Bank of Korea reported the purchase of another 15 metric tonnes of gold in November, in addition to the 25 tonnes they had purchased earlier this year.

The well-known banking house, Morgan Stanley, made its 2012 gold price forecast last week, at $2,200 an ounce.

Central Bank monetary actions taken by Europe, Asia, and the U.S. dominated the direction of precious metal trading during the week.  The U.S. Federal Reserve, the European Central Bank, and the central banks of Canada, Britain, Japan, and Switzerland said on Wednesday that they would lower the cost of existing dollar swap lines by 50 basis points starting December 5, and arrange bilateral swaps to provide liquidity for other currencies.

In a surprise announcement, the People’s Bank of China reported plans to cut banks reserve requirement ratios by 0.5%; an effort to help boost liquidity and support the world’s second largest economy amid global market turmoil and domestic recessionary trends.

My overview of what is happening with actions taken by the Central Banks of Europe, Asia, and the United States is that they are adopting a loose money policy by lowering global interest rates, and providing quantitative easing (QE) to deal with the massive debt crisis. It’s becoming clear that Angela Merkel of Germany, Nicolas Sarkozy of France, the ECB, and the IMF, are all working to create a legally enforceable “fiscal compact” to restore confidence in the eurozone. This “fiscal compact” would allow them to monitor the PIIGS countries budgetary disciplines and austerity programs, while providing enforceable penalties.  Many market analysts are speculating that during this week, at the Eurozone Heads of State December 9th meeting in Brussels, they will formalize any agreement.

December has always been an excellent month for gold demand and price increases. I look for a little consolidation in the $1,720 to $1,760 price range, followed by a major rally in Gold between now and the year-end based on a Eurozone nation’s agreement, seasonal demand from Asia, and as a hedge against declining returns and risks of sovereign and banking debt default.

SILVER

Last week silver traded between $31.13 to $33.74 per ounce, closing at $32.68 on Friday. Silver showed sizeable resistance above $33 per ounce, while finding great support below $32 per ounce.  As Gold approaches the $1,800 resistance level, I need to see Silver rally and stay above $33 per ounce, and hopefully $34 per ounce, for me to get more bullish on Silver’s short term outlook. Morgan Stanley has forecast Silver to reach $50 per ounce in 2012.

Concerns about the global recessionary trends and indications have led the Federal Reserve Vice Chairman Janet Yellen to say, "The scope remains to provide additional accommodation."

In the face of the following strong economic signs, she is still calling for more quantitative easing to stimulate the U.S. economy in the face of recessionary indications coming out of Asia and Europe.

Silver to Gold Ratio is 53.59 to 1

Last week strong signs that the U.S. economy is recovering were reported.

Monday - Consumer confidence jumped up to 56 in November – A 15 point increase

Tuesday - ADP Employment Report, stated the private sector added 206,000 jobs in November, double that of October

Wednesday - Chicago Purchasing Managers Index (PMI) increased to 62.6% in November, up from 58.4% in October

Thursday - Pending U.S. Home Sales for October jumped 10.4%

Friday - U.S. unemployment rate fell in November to 8.6% -- the lowest level since March 2009

What this means is although the U.S. economy appears to be heading in the right direction, the concerns about a serious recession in Europe and Asia will dramatically affect our exports and the strength of the U.S. Dollar.  Part of the benefit of our Federal Reserve Bank keeping interest rates very low is a weak dollar policy, which is helpful with the trade balance. Therefore, if the Europeans and Asians stimulate their economies with quantitative easing, we will surely follow their lead.  

PLATINUM

Platinum closed at $1,553 per ounce on Friday and is now trading at a $198 discount to the gold price, a historic high.  Although recent platinum trading has not been impressive, the long term value of platinum at this discount to gold is extraordinary. I recommend the popular 1oz .999 Australian Platinum Platypus coins. They are an excellent platinum investment and trade at a low premium.  

Recommended investment commitment and diversification: 

Precious Metal commitment: Minimum of 35 % of investment capital

Diversification:  Gold 75%, Silver 20%, Platinum & Palladium 5%

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

YEAR END GOLD and SILVER LIKE KIND TAX TRADES

As we approach Dec 31st we have an opportunity to make some year-end like kind trades for gold and silver without any tax obligation. For Gold, we recommend trading 1oz Gold Krugerrands, Maple Leafs, and U.S. Eagles, for European Pre-1933 Gold coins. This like kind trade offers many benefits. For Silver, we recommend trading 10 to 100oz Silver Bars and junk 90% U.S. Silver coins, for low premium Pre-1933 U.S. Silver Dollars.  Please contact us to discuss prices and availability.     

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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.