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4.24.14 - Gold Jumps On Growing Global Turmoil

Gold prices end higher as tensions between Ukraine and Russia intensify. U.S. stocks ended volatile session higher on positive earnings and upbeat data. Gold last traded at $1,290 an ounce. Silver at $19.69 an ounce.

A series of news reports today seem to be shouting for investors to take advantage of low gold prices in seeking safe harbor for their hard-earned wealth.

Foremost on many minds is continuing tensions in Ukraine, with Russian President Vladimir Putin issuing fresh threats that Russia will move to "protect" Russians in Ukraine.

Putin seems to be close to following through on those threats with Russian forces holding more war games on the Ukrainian border.

German Chancellor Angela Merkel warned of a "catastrophe" if Russia moves against Ukraine militarily.

Merkel was initially more cautious than other Western leaders on the Crimean crisis, but in recent days she has pushed the European Union to match U.S. sanctions. EU action is critical because Europe does 10 times as much trade with Russia as the United States, buying most of its gas and oil exports.

The prospect that EU measures could be implemented as soon as Monday has weighed down Russian markets.

But make no mistake, such sanctions would cut both ways at a time when Western European nations are still trying to recover from a severe economic and financial crisis. Add to this the concerns over Chinese economic growth and the escalation of tensions in Ukraine and it all spells trouble for world financial markets.

Investors can't even take solace in positive US economic news.

More Americans than forecast filed applications for unemployment benefits last week.

Jobless claims increased by 24,000 to 329,000 in the week ended April 19, the most in a month, the US Labor Department reported today.

Economists had expected 315,000 claims.

This is just the latest in a series of bad employment reports we've been highlighting. The Fed keeps telling America the economy is getting better, while claiming credit for that improvement.

But not only are Americans not seeing that improvement themselves, but the economic statistics don't reflect an improving economy.

This has serious implications for the dollar. As more investors realize the US economy is NOT healthy, dollar-based assets like US stocks and bonds will suffer.

Persistent unemployment is not the only economic problem confronting investors. As we've started reporting in recent weeks, signs of cost-push inflation are starting to appear in the US economy.

CNBC reports more and more US firms are feeling the squeeze of rising prices for a variety of items and services.

Hooker Furniture reports rising leather costs forced it to raise prices last quarter. Yum! Brands reports higher-than-expected commodity inflation, and therefore, higher menu prices. Lighting company Acuity Brands said prices of some of the commodities it uses are rising and the Georgia-based company said it's feeling the impact of higher health-care and wage costs as well.

On its earnings call, McDonald's management discussed the increase in hourly minimum wage costs that took effect in 13 states at the beginning the year.

All told, the management discussions this earnings season are providing a glimpse at what some analysts say the market may be quietly figuring out ... a higher rate of inflation.

Chipotle Mexican Grill said beef prices are up 25 percent since the fourth quarter, and it expects a 10 percent jump in cheese prices this year and higher avocado costs. It is raising prices company-wide for the first time in nearly three years.

The Thomson Reuters/Jefferies CRB index, which includes agricultural and other commodities, is up more than 11 percent so far this year.

The bond market is signaling inflation as well. The spread between yields at the long end of the Treasury curve and the short end has flattened.

It may be too early to tell just yet, but with other aspects of the US economy stagnant, rising inflation could be signaling the onset of "stagflation," the combination of rising inflation and flat or negative economic growth.

That phenomenon first appeared in the 1970s, when the S&P 500 fell some 45% over 21 months in a vicious bear market, while the price of gold tripled.

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4.23.14 - Expert Predicting Crash Of U.S. Dollar

Gold prices end higher on Ukraine tensions, weakness in U.S. equities and downbeat economic data. U.S. stocks fall on disappointing housing and manufacturing reports. Gold last traded at $1,283 an ounce. Silver at $19.42 an ounce.

A slew of economic reports combined with some stark predictions from respected market analysts emerged today. Investors would be wise to take notice.

60-year market veteran Richard Russell, who edits and publishes the world-renowned Dow Theory Letters, warned investors this week that the US dollar will crash in a matter of months.

Russell also stated he is buying all of the physical gold and silver he can, “while they are still available.”

Russell also added: "I think the bear market that started in 2007 was interrupted, BUT NOT ENDED, by the Fed. Somewhere ahead, I believe this bear market will run to conclusion. I also believe that the great recession never ended, but was masked by the 'manufacture' rally in the stock market. The US will lose its reserve currency advantage within a few years or probably less time. Our defense against a weak economy is always to print more money. In a matter of months, I see the dollar crashing.”

His predictions suggest the stock market remains extremely vulnerable, especially after five years of rising prices and because a decline in the value of the US dollar would have substantial implications for gold. Since the dollar is currently the world's reserve currency of choice, gold, which is the ultimate form of real money, serves as its natural rival. Any sharp decline in the value of the dollar will tend to push the price of gold higher and also stimulate demand for gold. What's more, because gold is priced in dollars, a decline in the value of the dollar will tend to push the price of gold in dollars higher.

Russell is not the only market analyst who's sounding the alarm.

Hedge-fund manager David Einhorn, who runs Greenlight Capital, issued a similar warning to his clients in his quarterly letter: "Now there is a clear consensus that we are witnessing our second tech bubble in 15 years. What is uncertain is how much further the bubble can expand, and what might pop it."

Einhorn, who is famous for his prediction of the Lehman Brothers collapse, cited three indications of a bubble:

-The rejection of conventional valuation methods;
-Short-sellers forced to cover due to intolerable mark-to-market losses; and
-Huge first day IPO pops for companies that have done little more than use the right buzzwords to attract the right venture capital.

Some economic reports released this week are certainly not supportive of continued growth in the stock market.

The U.S. manufacturing sector expanded in April though the rate of growth fell short of what economists expected and was lower than the March reading.

Financial data firm Markit said its preliminary or "flash" U.S. Manufacturing Purchasing Managers Index dipped to 55.4 in April from 55.5 in March. Economists polled by Reuters expected a reading of 56.0.

Meanwhile, a similar gauge in China signaled economic weakness in their economy.

The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was 48.3 in April, below the expansion-contraction dividing line of 50. In other words, the Chinese manufacturing sector is contracting, not expanding.

The stock market may not be the only market in peril. The real estate market is exhibiting symptoms of a malaise. Yesterday we reported weakness in sales of existing homes in the US. Today there is a report of similar weakness in the sale of new homes.

Sales of new single-family homes plunged last month, hitting the slowest pace since July. In March, home sales fell 14.5% to a seasonally adjusted annual rate of 384,000, led by drops in three of four U.S. regions. Economists had expected an annual rate of 450,000 in March, so this report showed an unexpected, drastic decline.

Finally, there is yet another factor which partially explains the across the board decline in US and European stock markets today: Ukraine (again).

Ukraine edged closer to a new round of hostilities after the government in Kiev said it’s resuming operations to oust militants from eastern cities and Russia pledged to defend its citizens in the neighboring country.

Russian Foreign Minister Sergei Lavrov said his country is prepared to retaliate if its “legitimate interests” are “attacked directly,” drawing a parallel with its actions during a 2008 war over the Georgian breakaway region of South Ossetia. A military operation is under way after its suspension for the Easter holiday, with security agencies seeking to eliminate all militias operating in Kramatorsk, Slovyansk and other cities, Ukraine’s First Deputy Prime Minister Vitali Yarema told reporters in Kiev today.

“Russian citizens being attacked is an attack against the Russian Federation,” Lavrov said in an interview today with the state-run television broadcaster RT. “If we are attacked, we would certainly respond.”

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4.22.14 - America's Middle Class Is Declining

Gold prices fall on more technical pressure and a rally in U.S. equities. U.S. stocks higher, S&P 500 and Nasdaq set for sixth-straight day of gains. Gold last traded at $1,281 an ounce. Silver at $19.36 an ounce.

There are two disturbing, interrelated long-term trends in the US economy that have implications for investors as well as the financial markets.

Long-term trend #1: The decline of the middle class

The American middle class is the engine of growth for the US economy. That's why its decline in recent years is so worrisome. In fact the American middle class, long the most affluent in the world, has lost that distinction. A New York Times analysis shows that across the lower and middle income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.

After-tax, middle-class incomes in Canada now appear to be higher than they are in the United States. The poor in much of Europe earn more than poor Americans.

Median income in Canada pulled into a tie with median United States income in 2010 and has most likely surpassed it since then. Median incomes in Western European countries still trail those in the United States, but the gap in several — including Britain, the Netherlands and Sweden — is much smaller than it was a decade ago.

This has serious implications for the value of the US dollar as wealth is migrating out of America to overseas markets.

Long-term trend #2: Expanding income inequality

While the wealthiest Americans are outpacing many of their global peers, middle and lower income Americans are losing ground.

Although economic growth in the United States continues to be as strong as it is in many other countries, a small percentage of American households fully benefit from it.

This suggests most American families are paying a steep price for high and rising income inequality.

Thomas Piketty, author of Capital in the 21st Century, believes increased inequality in the U.S. contributed to the financial crisis that slammed the housing and financial markets in 2007 and 2008: "One consequence of increasing inequality was virtual stagnation of the purchasing power of the lower and middle classes in the United States, which inevitably made it more likely that modest households would take on debt ..."

And that borrowing, as we know, left many mortgage holders with much more debt than they could handle. Foreclosures soared, mortgage lenders failed and some top Wall Street firms, heavily involved in the mortgage-backed securities market like Bear Stearns and Lehman Brothers, went bankrupt.

Increased income inequality contributed to the Great Depression as well, suggesting that this long-term trend could produce more financial crises going forward.

In other economic and financial market news, the inevitability of rising interest rates after years of loose Federal Reserve monetary policy is set to take its toll on the bond, real estate and stock markets. Investors have enjoyed historically low interest rates for several years now and are largely unprepared for the flip side, when rates rise. Rising interest rates are destructive for existing bonds and bond funds, the investment vehicles investors sought for safety in the first place. Their decline in the face of rising rates will be a rude awakening for investors.

Rising rates are also tough on stocks as new bonds and cash equivalents, such as money market funds, provide competition for equities.

Finally, rising rates are just as destructive for real estate as they are for bonds as the costs of borrowing increase.

That could be why we've seen a decline in home sales for the third month in a row. Just yesterday Gallup reported that Americans saw real estate as the best investment over the long-term. Recent market action tells a different story.

Sales of previously owned homes fell in March for the third consecutive month. Closings fell 0.2 percent to a 4.59 million annual rate, the lowest level since July 2012, the National Association of Realtors reported.

Meanwhile, gold has been on a 4-day losing streak, there are technical signs that the market is set to turn bullish.

Ryan Detrick, Chief Technical Strategist at Schaeffer’s Investment Research sees gold heading to $1,420 an ounce and says a reversal of the key moving averages is a positive technical indicator for gold. “Recently the 50-day moving average has moved above the 200-day moving average, a bullish cross,” Detrick noted. “This can be a sign that the bulls are going to take charge here.”

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