Gold Standard News Daily - Real Money Blog
Posted M-F 6pm ET
12.6.13 - Positive News For The Job Market
Gold prices close lower as traders react to stronger-than-expected jobs data. U.S. stocks rally Friday but finished down for the week. Gold last traded at $1,229 an ounce. Silver at $19.52 an ounce.
Economic statistics took a decisive shift to the positive today with a much better than expected jobs report and a report that consumer sentiment is back on the rise.
Both reports break trends in which the labor market and consumer sentiment had been declining.
The news on the job front, namely that more than 200,000 jobs were created during November and the US unemployment rate fell to 7.0%, took the markets by surprise. Gold was no exception. Initially gold fell on the news, but recovered sharply and entered positive territory. A decline in unemployment often signals stronger economic growth, which can increase gold demand.
Nevertheless, it may be too early for euphoria over the positive economic news.
1,148,000 fewer Americans held jobs this November than did seven years ago in November 2006, according to the data released today by the Bureau of Labor Statistics.
Back in 2006, 145,534,000 Americans held jobs. This November only 144,386,000 Americans hold jobs. That is a drop of 1,148,000 in the number of Americans working.
This decline has come even though the size of the nation’s civilian population and the size of the nation’s civilian labor force have both grown significantly over the last seven years. The unemployment rate would be higher today, but a lower percentage of the civilian population is participating in the work force today than in 2006. In 2006, the work force participation rate was 66.3%. Today it is 63%. That means more Americans do not have jobs and are not looking for work today than 7 years ago. This reflects a degree of hopelessness among American workers.
It's no wonder Americans don't believe President Obama when he talks of the "economic recovery." Rasmussen reports in its most recent survey, only 22 percent of respondents rate the economy as "good" or "excellent." Similarly, the latest CNN/ORC International survey found 39 percent believe the economy is still declining and only 24 percent believe it is recovering. The same survey in October found 59 percent predicting poor economic conditions a year from now, so there is precious little economic optimism out there. This puts a damper on the latest consumer sentiment number released this morning.
Of course, everyone in the investment world watches the Fed. This good news could easily turn into bad news in the eyes of Wall Street if an improving economy means that the Fed will start to "taper" its Quantitative Easing program. The fact that Wall Street is so focused on this narrow aspect of the economic and financial mosaic is further proof the stock market climb may be a mirage created by a Fed policy that will eventually end.
12.5.13 - Be Wary Of Latest Economic Reports
Gold prices lower on corrective pull-back and economic data. U.S. stocks lower on jobless claims data. Gold last traded at $1,231 an ounce. Silver at $19.57 an ounce.
Jobless claims in the US fell below 300,000 for just the second time since 2009, but economists warn not to draw too many conclusions from this figure since making season adjustments during holiday periods notoriously skews November and December readings.
In other labor news, a labor movement of sorts is afflicting the nation's fast-food industry, with groups of employees picketing and demanding a minimum wage of $15 per hour. They're unlikely to get their wish, but this shows there is an underlying, organized movement involved here. Fast-food workers didn't suddenly rise up across America on their own. This type of activity could eventually result in wage inflation, which was one of the biggest components of the high inflation of the 1970s. Employment analysts point out that a raise along the lines of what the employees are demanding would likely result in 500,000 newly unemployed.
Another government economic report has also created a mirage of sorts. The economy grew at a 3.6% annual pace in the third quarter -- much stronger than expected, according to a government report released Thursday. But the main reason that growth in the nation's gross domestic product was so strong was because businesses are stockpiling larger inventories. Once one factors out the impact from the inventory boost, GDP growth would have been just 1.9%.
Why are businesses adding to their inventories so dramatically? It's not clear. It could be a sign companies expect demand will pick up in the future -- so they are stocking their shelves in advance. Or, it could be an indication that demand is weaker than expected and, as a result, goods are lingering on the shelves longer than planned.
Some evidence points to the latter theory, which would be discouraging news. Consumer spending did grow at a slower pace in the third quarter.
What's more, economists expect the fourth quarter GDP numbers to be weaker as inventories are unlikely to contribute to growth in the next quarter.
The recent economic news has not impressed the Dow, which is on pace today for its 5th consecutive daily decline. Whether this is a trend remains to be seen, but it is certainly worth watching given the warnings issued by financial experts like Robert Shiller and Bill Gross in recent days.
One thing unlikely to help the stock market, at least the banking sector, is an announcement late yesterday by Attorney General Eric Holder that the Justice Department plans to bring mortgage fraud cases against several financial institutions early in 2014. They plan to use the case that ended last month in JPMorgan Chase & Co's $13 billion settlement as a template. So far, the government seems content to make banks the scapegoat in the 2008 financial crisis induced by the sub-prime mortgage debacle, while essentially ignoring the chief role played by FNMA and other government entities in encouraging and incentivizing the very practices the Justice Department is now going after banks for.
12.4.13 - Government Shutdown Looming Once Again
Gold prices jumped more than 2% on a short-covering rally. U.S. stocks move lower on 4-day loss streak. Gold last traded at $1,247 an ounce. Silver at $19.83 an ounce.
Federal Reserve monetary policy is once again in the news, with a word of caution from one of the world's most prominent bond traders and comments from the president of the San Francisco Federal Reserve Bank.
Pimco's Bill Gross issued his monthly investment outlook and warned that investors are playing a dangerous game in depending on Fed stimulus to keep boosting stocks. He even characterized the Fed's "medicine" of loose monetary policy as a "desperate gamble to promote growth."
As a result Gross says we now have, "artificially priced assets based on artificially low rates." In other words, a bubble. When that bubble bursts, Gross fears investors have nowhere to hide.
Meanwhile, at least one prominent officer of the Federal Reserve wants to continue the policies that Gross is warning America about. San Francisco Federal Reserve Bank president John Williams believes the Fed policy of Quantitative Easing is working and should be left in place until the Fed is “completely confident” the economy is on the right track. (This of course begs the question: if the policy was working, why is is taking so long for everyone to be confident the economy is on the right track? Could it be that the economy is NOT on the right track?) Williams' comments are significant because he is seen as a close ally of Janet Yellen, who is expected to take over for Ben Bernanke as Fed chairman early next year.
The Fed may be hard at work, but the rest of the government may not be for long. That's right, government shutdown is looming once again. Republicans and Democrats in Congress have been negotiating on a stopgap spending bill but are evidently not close to an agreement. They will soon break for Christmas, raising the prospect of another government shutdown in mid-January. This will no doubt loom larger and larger as an issue going forward, both for the economy and the financial markets.
The prospect of another government shutdown won't help the perception of US prestige which, by the way, is now at a 40-year low. According to Pew Research, for the first time in nearly 40 years, a majority of Americans believe the United States is less important around the world. 70 percent said the U.S. is respected less than in the past. If this is the perception of the American people, just think of the perception around the world from folks like the Chinese, who hold so much of our official debt. This type of perception can only contribute to the continued decline of the US dollar along with America's prestige.
12.3.13 - Buy Gold Now While Prices Are Low!
Gold prices slightly lower as traders await economic data due out later this week. U.S. stocks fall for third day on taper worries. Gold last traded at $1,220 an ounce. Silver at $19.06 an ounce.
Gold is trading near its lowest levels since July. This likely represents one of the few bargains in the investment world today.
Ultimately, in order to be a successful investor, one has to buy low and sell high. Gold offers the opportunity to buy low right now, trading at its lowest levels in nearly 6 months.
What other investment category offers the opportunity to buy low right now?
Certainly, the stock market does not offer such an opportunity. Quite the opposite. More and more stock market analysts, including Nobel prize-winning economist Robert Shiller, are pointing out that the stock market is overpriced and vulnerable to a setback.
Bonds can't be seen as a bargain with interest rates starting to creep back up (when interest rates climb, bond prices fall).
Real estate has also climbed in recent months and only lately has suffered as mortgage rates climb.
Only gold is a bargain today.
Moreover, there are factors that point to the need for gold. Gold is inextricably tied to the US dollar as the world's reserve currency of choice. In fact, gold is the dollar's natural rival. When the dollar suffers, gold tends to benefit. Because gold is currently priced in dollars, a decline in the dollar is usually reflected in the dollar price of gold.
With this in mind, any discussion of gold must begin with a discussion of the prospects of the dollar. That dollar is hopelessly vulnerable due to the gargantuan US national debt (currently recognized officially at $17 trillion). Sooner or later, the US will be forced to service that debt with dollars cheapened by inflation. For that reason alone, gold is a vital necessity for every portfolio. Given that gold is near 6-month lows, investors should take advantage of this opportunity to acquire gold at bargain prices.
The banking sector is also back on the front pages of the financial press.
Yesterday, banking giant RBS spooked depositors and other customers when a technology "glitch" shut down the bank's online features and paralyzed customers' credit and debit cards in the middle of the holiday shopping season.
But more significant was a report in The Wall Street Journal that indicated a rather unhealthy consolidation in America's banking sector. Big banks are taking over smaller, community banks at a rapid clip. So much so the number of banking institutions in the US has dwindled to its lowest levels since the Great Depression. This is especially troubling since America's biggest banks have recently seen their ratings downgraded by both Standard & Poor's and Moody's, the biggest rating services in the world.
12.2.13 - Experts Warn About Risk In U.S. Stock Market
Gold prices fall on better-than-expected U.S. manufacturing data. Stocks see late selloff on fears of an overextended rally. Gold last traded at $1,221 an ounce. Silver at $19.29 an ounce.
More market experts are warning investors about risk in the US stock market as trading enters the final month of the calendar year.
Nobel prize-winning economist of Yale University, Robert Shiller, warned Sunday that the recent sharp rise in equity prices in the U.S. is a dangerous development and it could signal the building of a financial bubble.
Shiller said he is concerned about sharp rises in stock prices, especially those in the financial and technology sectors, which he feels are overvalued. Overvalued assets create bubbles as their prices get detached from their true worth, leading to the collapse of a sector.
Shiller pointed out the stock market does not reflect the underlying fundamentals of the US economy, which are not strong.
"I am most worried about the boom in the U.S. stock market. Also because our economy is still weak and vulnerable," Reuters quoted Shiller as saying to Der Spiegel, a German magazine. "In many countries stock exchanges are at a high level and prices have risen sharply in some property markets. That could end badly.”
About the only factor driving the stock market right now is Federal Reserve monetary policies pumping money into the economy in what has been a failed attempt at boosting economic activity. About all Fed policy has accomplished has been to increase speculative activity in the stock market and undermine the value of the dollar. These outcomes become more difficult to sustain with each passing day. No tree grows to the sky and sooner or later the stock market will come down. As Shiller points out: it could be ugly. As for the dollar, there is no example in history of a nation leading itself to prosperity by debasing its currency. Why anyone thinks the US will be an exception is simply a mystery.
For now, the hope on Wall Street is the incoming Fed Chair, Janet Yellen, will continue the current policies and not rock the boat. But sooner or later Fed policy is going to be exposed as counterproductive, no matter who is at the top of the organization.
In economic news, there was some sobering news on construction spending this morning to add to the uncertainty in the US economy.
October construction spending increased 0.8 percent to an annual rate of $908.4 billion, the highest level since May 2009, the Commerce Department said. Economists polled by Reuters had expected an increase of 0.4 percent.
But there is once again a demon in the details.
The October construction spending was buoyed by a 3.9 percent jump in public construction projects, the largest increase since March 2004. But spending on private construction projects fell 0.5 percent, pulled down by declines in both residential and nonresidential outlays.
That could be a sign high interest rates are starting to have an impact on the economy, which bodes ill for investment.
The economy simply cannot depend upon the government to be the driver of investment over the long haul. If the private sector continues to contract, no amount of government "investment" will sustain US economic growth at healthy levels.
To see older blog posts CLICK HERE