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“In all that the people can individually do as well for themselves, government ought not to interfere.”

                                                                                                                                                                                    Abraham Lincoln

January 25, 2012

Global Markets

US stocks saw a small dip at the opening bell yesterday and traded sideways from there; leaving the Dow with a 33 point loss on the session. The S&P 500 also finished fractionally lower, while the NASDAQ managed to finish two points to the upside. It looks to be the same story this morning, as futures point slightly lower and traders wait things out with an eye towardEuropeand ongoing economic data. Investors will also anxiously await Ben Bernanke’s press conference after today’s conclusion of eight today FOMC meeting.

President Obama made the economy, jobs, and protecting the middle class major themes of his State of theUnionaddress last night. He also struck a harsh tone toward Wall Street, saying there will be no return to “the days when Wall Street was allowed to play by its own set of rules.”

Once again, many Asian markets remain closed for New Year celebrations, including Hong Kong andShanghai. InTokyo, the Nikkei turned in a respectable gain of 1.12% on the back of a weaker Yen. The Yen reversed to the downside after new data showing thatJapansaw its first annual trade deficit since 1980. In December, Japanese exports slowed by 8% annually, while imports rose 8.1% from the prior year. As would be expected, exporter shares were among the biggest gainers inTokyo. InSydney, strong performance among bank stocks helped the Australian exchange finish 1.11% higher.

The momentum in Asia, however, has failed to carry over intoEuropethis morning, as investors there seem to be growing more impatient with the lack of resolution in the sovereign debt crisis. Mid-morning, the major indices across the region all find themselves lower by about 0.7%. InLondon, declining bank stocks are having the biggest impact, after new data showed fourth quarter GDP had contracted by 0.2% from the prior quarter. Yesterday, the IMF also cut its forecast forUKgrowth in 2012 down to 0.6% from its prior estimate of 1.6%.

Germanyhas not released its GDP data as yet, but analysts predict a slight contraction there as well.

An irresistible side note: The ECB is strongly opposing the idea of taking any losses on it’s holdings of Greek debt.

Gold & Precious Metals

Gold trimmed nearly $10 yesterday, and has given up another $12 this morning, to trade at $1654. A stronger Dollar and weaker Euro are certainly part of the current pullback, but some traders are also assessing the outcome of the Federal Reserve’s two-day policy meeting, after which Chairman Ben Bernanke will hold a press conference today. The obvious outcomes for gold would be a flat to lower performance if the Fed remains tight-lipped and a leg higher if Bernanke gives the slightest indication of further easing ahead. With economic data relatively strong as of late, it would appear very unlikely that we will hear a consensus for further action from the central bank. Traders, therefore, will look deeply into individual opinions to see if any FOMC members are showing a bias one way or the other.

Physical demand is also an issue for gold right now, as major markets inChina,Taiwan, andHong Kongremained closed for holiday.

The World Gold Council, in its quarterly commentary, pointed out that historically, a strong pullback like we saw at the end of 2011 typically precedes another strong rally for gold. The report also noted that gold holding exchange traded funds built up their positions in the fourth quarter.

Word fromIndiais that gold purchases during the wedding season have been at least as good, if not better, than this time last year.Indiarecently announced it is raising its import tax on gold and silver to slow the rate of imports into the country.India’s gold imports are expected to reach about $55 billion this year. The effect of the tax will be higher domestic prices but may also slow demand somewhat.

Energy and Commodities

Commodities are holding up rather well, considering we are seeing a bit more strength on the Dollar this morning. Although metals and the energy group and moved slightly lower, agricultural commodities are considerably mixed.

Crude oil has turned lower by 0.88% this morning down to $98.08; extending its losses into a second session.

Although data yesterday showed an increase in consumer demand for gasoline, this was largely overshadowed by a surprising rise of 7.33 million barrels inUScrude inventories, according to the American Petroleum Institute. For gasoline, consumption climbed 1.3% last week, while inventories fell by 573,000 barrels.

Once again,Iranhas threatened to close theStrait of Hormuz, after the European Union agreed on an embargo of Iranian exports. The agreement would immediately ban all new contracts and would honor current contracts until no later than July.Iranreportedly sells about 20% of its production toEurope. The three biggest buyers areGreece,Spain, andItalyall of which are also fighting fragile economies at home.

Uranium Investing

At least one industry expert, Thomas Drolet, President of Drolet & Associates Energy Services, says he sees a supply crisis in the uranium industry by about 2016. He points out that long-standing supply is already dwindling and will be a growing issue in the next year or so. In 2010, 118 million pounds of uranium was mined, while global consumption was about 190 million pounds.

Uranium spot prices remain generally unchanged at around $52, but there continues to be a lot of deal activity within the industry.

China Guandong Nuclear Power Corporation has upped its stake in Kalahari Minerals to nearly 30% as it slowly moves toward a complete takeover

Elsewhere, Gold One International has finally completed its $250 million acquisition of Rand Uranium in a deal that was first announced back in May 2011. Gold One received approval fromSouth Africa’s Department of Mineral Resources in late December 2011.

Elsewhere, Rio Tinto is wrapping up its Hathor Exploration acquisition, by buying up the small percentage of shares it did not already own.Riosaid it will then de-list Hathor from the Toronto Stock Exchange.

Shares in Russian-owned miner Uranium One are on the rise after the company announced it had produced a record 10.7-million pounds of the nuclear fuel in 2011, which is a 45% increase from the prior year.

China’s Ministry of Environmental Protection has put together a draft of new safety rules for its nuclear industry. Once approved by the government,Chinamay be ready to move ahead with new nuclear projects. No details of the draft have been released, but the ministry says that the new safety rules are “tougher” than earlier regulations.

Rare Earth Investing

In an effort to support softening rare earth prices in the marketplace,Chinahas announced another cut in its rare earth export quotas. The Commerce Ministry announced a 27% reduction in exports for the first half of 2012. It should be noted, however, thatChinaactually fell short of its quota last year, as weakening global economic conditions also reduced demand.

A new Energy Department report, however, suggested that several critical rare earth elements would remain in short supply in till at least 2015. The report highlighted dysprosium, terbium, europium, neodymium and yttrium as the key elements to watch.

China’s Ganzhou Qiandong Rare Earth Group has signed a joint venture agreement with Great Western Minerals Group to develop a rare earth separation plant inSouth Africa.

Germany is also getting into the game. German miner Deutsche Rohstoff has said it will develop an estimated deposit of 38,000 tons in easternGermany. The subsidiary set up for the rare Earth project received €2.2 million from German investors and plans a public offering later this year. Exploratory drilling is planned in the Spring. This

Molycorp recently announced that about 78% of its Phase 1 rare-earth production at itsMountain Pass,California manufacturing facility has been committed. Having a product sold before it’s reduced is certainly a positive development for any company. One thing that remains in question for Molycorp is whether they will be able to process the critical heavy rare earths that are likely to be in the greatest demand.

The future of rare earth profits will lie largely in the heavy rare earths. This does pose a problem for some would-be manufacturers, as the refining process is complex and expensive and, as such, prohibitive to many junior miners. Molycorp, for one, has solid potential in this arena but does not, as yet, possess the capability to process the “heavies.” It could pose a $500-$600 Million problem that has not been discussed openly.

Public Finance and Fixed Income

US Treasuries move higher again after declining slowly for five consecutive sessions. The bond markets will be waiting for the Fed’s first-ever long-term interest rate projections, which will come out later today at the conclusion of the two-day FOMC meeting.

The US Treasury will auction $35 billion of five-year notes today and another $29 billion of seven-year debt tomorrow.

Another factor hanging over the marketplace is the lack of progress on a debt swap deal forGreece. European finance ministers met earlier this week but failed to produce a final plan. The ministers are said to be pushing for more concessions. The group is reportedly looking for investors to accept a lower rate on the longer-term bonds received in exchange for their short-term holdings.

In theUK, new data showed fourth quarter GDP had contracted by 0.2% from the prior quarter. Yesterday, the IMF also cut its forecast forUKgrowth in 2012 down to 0.6% from its prior estimate of 1.6%.

Germanyhas not released its GDP data as yet, but analysts predict a slight contraction there as well.

International Currencies

The Dollar has slowly built upward momentum throughout the morning, and is now higher against all of its major counterparts. The Euro began to slip early on investor impatience for a resolution to the debt crisis inGreeceand across the region. The Euro is now lower by about 0.68% against the Dollar, while the British Pound is down by about 0.33%.

New data in theUKshowed fourth quarter GDP had contracted by 0.2% from the prior quarter. Yesterday, the IMF also cut its forecast forUKgrowth in 2012 down to 0.6% from its prior estimate of 1.6%.

Bank ofEnglandGovernor Mervyn King said the BoE stands ready to increase its bond purchases if need be.

Germanyhas not released its GDP data as yet, but analysts predict a slight contraction there as well.

Economic News & Corporate Earnings

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