APMEX End of Week Report 6/29/2012

Silver Undervalued and Golden Haven:

Precious Metals closed out the week on a positive note rebounding from losses Thursday.  Precious Metals prices have been following the global economic situation and the movement of the American dollar.  The dollar weakened against the euro on news of a European plan to lower eurozone member nations’ borrowing costs.  Economist Vishnu Varathan said, “It still falls short of a concrete solution, but the removal of severe pessimism over what’s going to come out of the EU summit is driving markets higher.” Meanwhile, the news has led analyst Lynette Tan to offer a positive year end outlook for Gold. She said, “In the long run, we’re still bullish on Gold. It’s still likely to hit last year’s high of $1,920. The global economy is not doing well, and we expect safe haven demand to be back for Gold.”  There is speculation that Silver is undervalued at current levels and about what actually is driving the price. Julian Phillips at silverforecaster.com said, “With the monetary stresses now and for the next few years at current levels, there is little reason why prices should fall. Gold will react more and more as a monetary metal and the Silver prices will move with it, not with economic conditions.”

European House in order?:

Eurozone leaders came together this week and hammered out a surprising compromise plan to help member nations. There are still issues to be worked out, but going from “no hope” to at least a road map of a plan on which everyone agrees was a boost to global markets. The biggest shock of all is Germany’s agreement to a majority of the provisions. Banker Holger Schmieding said, “The summit result offers no ‘silver bullet’ to solve the euro crisis once and for all. … It is another attempt to buy some extra time for the underlying fiscal repair and structural reforms to show results.  All in all, there is some progress.” However, strategist Charles Diebel stated what many investors are probably thinking: “It is one step on a very long road.  But we don’t have any details, and arguably the detail is where the risk lies, because the market will start to pick holes in it, as we’ve seen previously.”  Crude oil and Gold prices began to climb after European Union leaders announced a strategy to have a single financial director for the region. The European Central Bank will step into this supervisory role for banks in the eurozone. This approach should help calm the markets. In some bearish news affecting crude oil, Saudi Arabia is planning to resume an oil pipeline project that has been on hold for a reported two decades, which should relieve some concerns involving the Strait of Hormuz.

Health Care & Jobs:

The “individual mandate” portion of President Barack Obama’s health care reform act has been upheld as constitutional in Thursday’s 5 to 4 Supreme Court ruling. This ruling comes just months before the presidential election, and Republicans are vowing to push for a repeal of the bill. While the long term effect of this ruling is not clear, it will be interesting to see how this affects the broader economy going forward.  This past week showed little improvement in the American labor market, as applications for unemployment benefits approached a high for the year. Concerns over the eurozone debt crisis and the potential end of the Bush era tax cuts have many employers running lean in terms of their headcounts. “There is no progress,” said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “There is clearly an underlying weakness that is troubling. The labor market is sputtering along, struggling to create jobs. The pace of consumer spending will slow in the second quarter.”  United States consumer sentiment for June fell to its lowest level since December. Americans’ attitude toward the economy isn’t necessarily optimistic now, especially from the viewpoint of those in households with incomes of more than $75,000. Richard Curtin, a survey director, said, “Since these households account for a large share of total spending, if the declines continue in the months ahead, it could have a substantial impact on total spending.”

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