This document is an excerpt from CPM Group’s Precious Metals Advisory.

Economic conditions deteriorated in most parts of the world over the course of May and into early June. Growth has weakened in the United States, although it has not stalled. Chinese output weakened. European eco-nomic activity ratcheted downward. Financial market conditions were mixed, but were suffering from the com-mensurate decline in investors’ opinions about economic prospects.

Further declines in growth are expected over the next three months, in line with the seasonal and cyclical weak-nesses that occurred in 2009, 2010, and 2011 during the third quarter. As was the case in these three immediate past years, the seasonal and cyclical weaknesses will be latched on to by precious metals investment product mar-keting groups, media demagogues, and politicians, who will seek to generate greater economic concerns than probably are warranted by the underlying economic reali-ties, warning that the world and individual economies are on the precipice of a new recession or even economic depression, the monetary system will fail, and worse.

The key question will be how gold, silver, and the platinum group metals markets, investors in particular, react to the underlying economic realities, and the hysteria that should be expected from the groups mentioned above. The most likely outcome is that some investors will succumb to the fear mongering, but most precious metals investors will remember that they have been misled by such warnings for the past three years, and will maintain a more measured interest in buying and holding precious metals. The gold section discusses the price outcomes under this scenario and one in which things get worse for the world.

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