9.23.11 Weekly Recap

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The $3 trillion deficit plan devised by President Obama was unveiled Monday; it featured a heavy emphasis on increased tax revenues from the wealthy. Today, the President stated, “”I will not support any plan that puts all the burden on closing our deficit on ordinary Americans. We are not going to have a one-sided deal that hurts the folks who are most vulnerable.” The President’s comments referred to the idea, often repeated during today’s remarks, that all Americans should pay a “fair share” of taxes, as well as his vow to veto any Medicare cuts unless Congress raises taxes on the wealthy and corporations.

Republican leaders were dismissive of the President’s plan. They were deriding it as a political stunt that is unlikely to ever be made into law. In response to the plan, Mitch McConnell, Republican Senate leader, stated, “Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth,” while Potomac Research Group’s chief political strategist Greg Valliere said, “This is purely politics, aimed at Obama’s demoralized base. It undoubtedly has been poll-tested, so now Obama has a populist campaign issue. There’s obviously no chance this could pass (on a vote in Congress).”

Monday also brought a credit rating downgrade on Italian bonds by Standard & Poor’s (S&P) on concerns that the on going debt crisiswill raise borrowing costs throughout the euro zone. This move surprised many and only puts more pressure on policymakers to lead. The chief commodity analyst at Oslo based SEB AB sees Gold prices going higher until political leaders implement effective action. Bjatne Schieldrop said, “Under current circumstances, a long position in Gold is highly recommended.”

The International Monetary Fund (IMF) released a report Tuesday which stated that the global outlook for economic growth was for a “weak and bumpy expansion,” which equates to a cutback to 1.5% from 1.8% and Europe being cut to 4% from 4.5%. The IMF’s Chief Economist, Olivier Blanchard, commented on the negative global outlook, “There is a wide perception that
policymakers are one step behind markets…Europe must get its act together
.” The IMF also forewarned the U.S. that hasty budget cuts could further weaken growth and added that the U.S. Federal Reserve should be ready to offer to further ease monetary policy.

The Fed released its plan for further easing on Wednesday, saying it will implement a plan known by the public as “Operation
Twist.” The Fed’s plan is to flatten the yield curve of U.S. Treasuries by selling short term bonds to buy long term bonds. This would push down the interest rate the government pays on 10-year T-Bills. Many other long-term loan interest rates (such as mortgage and business loans) are based on the rate of the 10-year Treasury bond. The net effect would be a reduction in borrowing cost for homeowners and businesses. If everything goes according to plan, the result would be job creation.  Following the announcement, both precious metals and stock markets fell sharply, with the Dow closing down 391 points on Thursday.  Precious
continued their downward momentum on Friday with Gold down by as much as $100 by the time of this writing.

Typically, Gold follows the stock market down on days with significant downward momentum such as Yesterday. Traders have to sell whatever they can to raise cash and cover margin calls. They literally go by the motto coined by Art Cashin, “if you can’t sell what you want, then sell what you can.” Gold is liquid; they need cash, so Gold gets sold. Speaking of Art Cashin,
he is quoted today as saying stocks have not bottomed yet.

On Friday, the U.S. stock market was choppy, but precious metal prices continued to plunge. Hedge funds sold Gold and this is the number one reason why Gold prices were down. The big question: “Are they selling because they are no longer bullish on Gold or are they selling because they need to raise cash quickly and Gold is a highly liquid asset?” Hedge funds not only need to raise
cash to cover margin calls in turbulent times like these but redemption requests increase. Michael Gayed, Chief Investment Strategist for Pension Partners comments, “The tendency for individual hedge funds or anybody is to sell winners before they sell losers. What’s been one of the few winners this year? It’s been Gold.” Not all funds are selling and there are still some
strategists who predict Gold to reach $2,300. After all, even with the pullback, Gold is up over 20% for the year.

Art Cashin, Director of Floor Operations at UBS Financial Services, says there might be a Thursday–Monday scenario in play, that could cause a massive rally in the markets next week. Mr. Cashin explains that we might be about to experience this historical trading pattern. The Thursday-Monday pattern begins with a steep decline on Thursday with very high volume. Friday’s markets
turn choppy (high volatility) and then weekend news sets the market up for a massive sell-off (capitulation) on Monday. The sell-off usually ends by Monday, but can extend into Tuesday. Shortly thereafter, capitulation is followed by a massive rally.

Enjoy the weekend! Who knows what the markets will bring this Monday?

Weekly Spot Prices

Spot Gold prices opened this week at $1,812.80. The high was on Monday, Sept. 19th at $1,832.90, while the low for the week occurred on Friday, Sept. 23rd $1,631.70. Gold ended the week down $152.90 at $1,659.90. This week, the most popular Gold bullion products were 2011 Gold American Eagles, 1 oz. Pamp Suisse Gold Bars, and 2011 1 oz. Gold Maple Leafs.

Spot Silver prices opened this week at $40.73. Silver reached a high of $40.90 on Monday, Sept. 19th, while this week’s low for Silver occurred on Friday, Sept. 23rd at $29.85. Silver ended the week down $9.69 at $31.04. The most popular Silver products on APMEX.com this week were 2011 Silver American Eagles, 2011 Silver Maple Leafs, 1 oz. Silver Buffalo Rounds and 10 oz. APMEX Silver Bars.

Spot Platinum prices opened this week at $1,813.70 and ended the week down $193.20 at $1,620.50. Popular Platinum products this week included, 1 oz. Platinum Bars, 1/10 oz. Platinum American Eagles, and 1 oz. Platinum American Eagles.

Spot Palladium prices opened this week at $736.30 and ended the week down $99.50 at $636.80. Palladium investors preferred 1 oz. Pamp Suisse Palladium Bars and Palladium Canadian Maple Leafs this week.

   2011 1 oz. Silver American Eagle

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2011 brought with it a newly designed Silver American Eagle. This current date of the Silver Eagle will only add to the coin’s legacy as the most popular Silver bullion coin in the world. Another interesting tidbit about the 2011 Silver American Eagle is the minting location. 2011 is the first year Silver Eagles have been minted at the San Francisco Mint since 1998.

The U.S. Mint began minting the Silver American Eagle (SAE) in 1986.  The 26 years of mintage have produced over 225 million SAEs.  Since 2000, demand for these coins has exploded.  These 2011 coins trade at premiums close to common-date Silver American Eagles, which makes their current date a bonus of sorts.  The 2011 SAE is a brilliant uncirculated coin that can be bought in bulk at APMEX.com and used in Precious Metals IRAs while potentially adding numismatic value to your investment.

Balance your portfolio with the 4th asset class of Gold today.

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