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“I believe that banking institutions are more dangerous to our liberties than standing armies.”

                                                                                                                                                             Thomas Jefferson

January 26, 2012

Global Markets

Generally speaking, yesterday’s comments from Fed Chairman Ben Bernanke, at the conclusion of the two-day FOMC meeting, were well received in the markets. After spending the early part of the day in negative territory, the Dow gained some momentum in the afternoon to finish 81 points higher. Futures are flat to slightly higher this morning, as investors turned their focus to an important round of economic data today.

Simply put, Bernanke committed to keep rates low for at least three more years, and hinted that the Fed stood ready to initiate further quantitative easing if necessary. “We need to be thinking about ways to provide further stimulus if we don’t get improvement in the pace of recovery and a normalization of inflation,” Bernanke told reporters at a news conference.

Asian stocks were but mixed overnight. InHong Kong, traders returned from holiday and bid the Hang Seng 1.63% higher. The Australian index also continued its upward momentum; adding another 1.11%. InTokyo, after reaching a three-month high this week, the Nikkei trimmed about 0.4%. A renewed rally for gold and other commodities helped boost resource stocks across the region.

Despite ongoing stresses at home, the European markets were lifted by Bernanke’s speech as well. At mid-day,London’s FTSE is up by about 1%, the German DAX has gained 1.2%, and the French CAC is lagging behind with a more modest upside of 0.4%. So far, banks and mining stocks have led the rally.

There seems to have been a little progress on the Greek debt swap deal. Reports have surfaced this morning that private bondholders have agreed to take slightly lower rates on the new long-term bonds they receive. They originally called for a rate of 4%, which European finance ministers essentially rejected. Private sector creditors will now put forth a proposal in which the average yield will be 3.75%.

The markets also breathed a sigh of relief afterItalysuccessfully placed €5 billion ($6.6 billion) of new debt. A majority of the placement was two-year, zero-coupon bonds, which when any yield of 3.76%; compared to 4.85% in a similar auction last month.

Gold & Precious Metals

Gold shot up vertically yesterday afternoon; finishing $44 higher at $1710. In a press conference following the conclusion of the two-day FOMC meeting, Fed Chairman Ben Bernanke extended his low rate pledge to 2014 and hinted at the possibility of further easing if necessary. This led to renewed interest in gold, on the prospects of a continuing easy money policy and the world’s largest economy.

Although the momentum is a little slower this morning, considerable weakness on the Dollar is still lending support, and gold has tacked on another $4 to $1714.

What we have here are growing prospects for long-term debasement of global fiat currencies, which is leading some investors to see gold is the only viable alternative for while. Bank of England Governor Mervyn King also hinted this week that the BoE stood ready to increase its bond purchases if need be, after new data in the UK showed fourth quarter GDP had contracted by 0.2% from the prior quarter.

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.

Energy and Commodities

Commodities have received quite a boost from a falling Dollar this morning, as almost every regularly traded commodity has seemed comfortable gains.

Crude oil, for one, has bounced quickly this morning, with an upside of 1.24% to trade at $100.63. A weak Dollar, and Fed Chairman Ben Bernanke’s promise to keep rates low and do more to support growth, is given a slight boost to the energy markets this morning. The upside, however, is certainly being limited by disappointing inventory data this week. The EIA Petroleum Status Report showed a surprising decline 3.44 million barrels, after Tuesday’s API report showed an increase of 7.33 million barrels in US crude inventories. Gasoline stockpiles grew by another 3.72 million barrels; a third consecutive increase. The API numbers showed a drop of 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.

Germanyis 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,Californiamanufacturing 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

USTreasuries are climbing for a second day; pushing yields to their lowest in two weeks. At the conclusion of the two-day FOMC meeting, Chairman Bernanke pledged to keep rates low for at least three more years, and hinted that the Fed stood ready to initiate further quantitative easing if necessary. “We need to be thinking about ways to provide further stimulus if we don’t get improvement in the pace of recovery and a normalization of inflation,” Bernanke told reporters at a news conference. Prospects for the Fed purchasing more bonds, the markets have bid Treasuries higher.

InEurope, there seems to have been some progress on the Greek debt swap deal. Reports have surfaced this morning that private bondholders have agreed to take slightly lower rates on the new long-term bonds they receive. They originally called for a rate of 4%, which European finance ministers essentially rejected. Private sector creditors will now put forth a proposal in which the average yield will be 3.75%.

The markets also breathed a sigh of relief afterItalysuccessfully placed €5 billion ($6.6 billion) of new debt. A majority of the placement was two-year, zero-coupon bonds, which when any yield of 3.76%; compared to 4.85% in a similar auction last month.

International Currencies

The Dollar has extended its decline this morning as the markets react to comments from Ben Bernanke yesterday. At the conclusion of the two-day FOMC meeting, Chairman Bernanke pledged to keep rates low for at least three more years, and hinted that the Fed stood ready to initiate further quantitative easing if necessary. “We need to be thinking about ways to provide further stimulus if we don’t get improvement in the pace of recovery and a normalization of inflation,” Bernanke told reporters at a news conference.

The Dollar has recovered from its earlier lows this morning, but remains about 0.3% lower on the Euro and 0.2% down on the British Pound.

Bank of England Governor Mervyn King also hinted this week that the BoE stood ready to increase its bond purchases if need be, after new data in the UK showed fourth quarter GDP had contracted by 0.2% from the prior quarter.

Economic News & Corporate Earnings

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