10.16.14 - Has The Bear Market in Stocks Begun?
Gold prices end slightly lower, but hold near 5-week high on upbeat economic reports. U.S. stocks end mostly flat after dovish remarks from James Bullard, president of the Federal Reserve Bank of St. Louis. Gold last traded at $1,241 an ounce. Silver at $17.44 an ounce.
World stock markets have been reeling for a week prompting many observers to predict that the downward momentum will accelerate, soon bringing the major indices into bear market territory.
A bear market is defined as a drop of 20% or more. A "correction" is defined as a drop of 10% or more. The Dow, S&P 500 and NASDAQ are all nearing the correction level and on pace to keep going. No bull market lasts forever. The last bear market in stocks saw the Dow drop 53%.
In recent times, major sell-offs have been about seven years apart. There was a major sell-off in stocks in 2001 and again in 2008. Under this timing scenario, the next one is due around 2015, which is less than a quarter away.
There are fears over the spread of Ebola, deflation, a slowdown in Europe, a fall in oil prices, and weak volumes which all contributed to the negative sentiment in stocks with investors shunning riskier assets. In Europe, fears over Greece's economy have also resurfaced on reports that Athens may want to drop out of its bailout program.
Up until now, stocks in Japan and China had escaped the carnage, but overnight they joined in.
Mounting anxiety over global growth and the spread of Ebola dragged Asian bourses lower.
Japan's Nikkei index closed at a fresh four-and-a-half-month low. Shanghai closed down 0.7%. Hong Kong stocks remained downbeat overnight, tanking 0.6 percent as the city's pro-democracy protests continued into the third week amid renewed clashes between police forces and protesters.
Here in the US, weaker retail sales, a decline in producer prices and a surprising drop in the Empire State index all added to the wave of worry pushing stocks lower.
New York manufacturers are growing at the slowest pace in six months as new orders shrink and shipments barely rise: The Federal Reserve Bank of New York said yesterday that its Empire State Manufacturing index dropped to 6.2 in October, down sharply from September. October's reading is the lowest since April.
Influential investor Dennis Gartman told CNBC that the bear market has begun and warned there was going to be "more than a mere 7 to 10 percent correction" in the stock markets. " I don't like to think about it – but this might be the very beginnings of a bear market that could last some period of time," he warned.
Traders will be watching today's economic reports for clues about the future strength of the US economy. Today's reports include weekly jobless claims, industrial production, the Philadelphia Federal Reserve survey and the National Association of Home Builders sentiment survey.
In addition, there will be a full slate of earnings reports turned in over the course of the day.
Hedge funds are on course for their worst year since 2011, as several of their biggest and most popular trades turned sour and some managers were forced to cut their losses.
Wednesday's new and sudden fall in US Treasury yields numerous wrong-footed funds that had positioned themselves for rising interest rates and an improving global economy.
Gold has retained sharp gains over the past week with investors seeking safety amid increasing concerns over a slump in the global economy and the numerous other factors negatively impacting stocks.
In other words, gold is shining now, demonstrating its vital role as a safe haven during times of turmoil and its ability to perform as a key portfolio diversifier. While world stock markets are falling precipitously, gold is more than holding its own--it's rising.
That's why gold belongs in every portfolio.
10.15.14 - Gold Accelerates Higher as Stock Market Suffers
Gold prices settle higher on weak economic reports and safe-haven demand. U.S. stocks tumble on continued concerns over the health of the global economy. Gold last traded at $1,242 an ounce. Silver at $17.43 an ounce.
Gold is once again proving its worth as a safe haven and portfolio diversifier today as its price is sharply higher while the Dow Jones Industrial Average has plunged 450 points--the worst trading day for the Dow in three years.
The Dow is by no means alone; the S&P 500 has fallen even further in terms of percentages and the NASDAQ is in the same ballpark. Moreover, the US stock market isn't alone. Stock markets in Germany, France and the UK all fell just as sharply overnight. All of these stock indices are now approaching "correction" (10% drop) territory.
Europe started the downfall due to fears of crumbling global growth, weak economic data and new concerns about the political situation in Greece.
"A major shift has happened in the last couple of days, Greece, who everyone thought was on the mend, saw its bond yield cross an important line," Kathleen Brooks, a research director at FOREX.com, said in a research note.
"Right now, there is no sovereign crisis, but the fact that Greek yields have crossed the 7 percent threshold is a warning sign that all is not well."
Since then, a variety of factors have added to the wall of worry in the US.
Transportation stocks led the decliners in the US on reports that a new Ebola patient flew the day before falling ill.
"Ebola is in the background," said Peter Boockvar, chief market analyst at The Lindsey Group. "It feeds generally into global growth concerns."
The recent bad news in the stock market has resulted in a paradigm shift in sentiment.
"I think this heightened volatility has shaken confidence among investors," Jack Ablin, chief investment officer at BMO Private Bank, said. "This downturn is feeding on itself."
Economic reports also touched off a renewed decline in the US dollar. This, combined with the turmoil in the stock market, has fed the accelerating gold rally.
The dollar hit session lows after data for September showed U.S. retail sales eased and U.S. producer prices fell for the first time in over a year, a potentially worrisome sign for the economy.
Retail sales, which account for about one-third of consumer spending, dropped 0.3 percent last month, the first decrease since January.
The weakness in retail sales was broad-based. A gauge of so-called core sales, which strips out automobiles, gasoline, building materials and food services - and corresponds most closely with the consumer spending component of gross domestic product - fell 0.2 percent. Economists had expected it to rise.
10.14.14 - Gold Continues Rebound on Variety of Concerns
Gold prices end higher on safe haven demand, short covering and bargain hunting. U.S. stocks close higher amid upbeat earnings results. Gold last traded at $1,234 an ounce. Silver at $17.40 an ounce.
The price of gold has continued its rally today in the wake of the worst 3-day stretch in stocks since 2011.
The combination of worries on the global economic front along with the sell-off in stocks has prompted investors to rediscover the safety of gold, pushing its price to fresh 4-week highs.
There are a variety of issues worrying investors right now, prompting them to seek safe havens.
First and foremost are worries about the global economy and when firms that are usually cheerleaders for Wall Street and Fed policymakers start issuing warnings, one must admit, things are bad.
Goldman Sachs cut its forecast for Europe in the 3rd Quarter to a triple-dip recessionary decline of -0.15% GDP. This is dramatically below what Goldman called an "over-optimistic" consensus forecast of +0.35% as incoming data they are seeing is notably weaker than expected.
Meanwhile, here in the US, with the holiday shopping season on the horizon, forecasters warn that businesses could ultimately struggle to persuade households to spend more in this year's season. Stagnant wage growth coupled with the rising costs of health care, child care, housing and other essentials, means many Americans simply have less money left at the end of the year for presents.
PriceWaterhouseCoopers projects that average holiday season spending per household will fall to $684 this year, from $735 in 2013, primarily because of sluggish salaries and rising costs of living.
This is what is known as "stagflation," a combination of a stagnating economy and a rising cost of living and it partially explains the move toward gold since, historically, stagflationary conditions produce rising gold prices and declining stock prices.
In a survey to be published this week by the personal finance website Bankrate.com, two-thirds of respondents said they would limit how much they spend each month. That, Bankrate said, could be an ominous sign for the holiday shopping season.
Retailers are competing against the many other rising costs middle class Americans are facing. Apartment rents have risen across the country for 23 straight quarters and last year the cost of child care rose by up to eight times the rate of increases in family income from the previous year.
The weaker spending is giving retailers thinner margins, prompting them to cut wages and benefits for workers, which contributes to stagnating wages.
The worries over economic growth around the world are having an affect on money managers.
Investors are showing less faith in the global economy, sending the appetite for riskier assets, such as emerging-markets and European equities, lower; according to a survey of fund managers released by Bank of America Merrill Lynch today. The survey found only a net 32% of the fund managers polled expect the global economy to strengthen over the next 12 months, marking the lowest reading in two years and a fall of more than 20 percentage points from the previous survey. Additionally, profit expectations slumped to an 18-month low.
At least one market analyst is watching a key indicator, the S&P 500 200-day moving average, and an exogenous factor: the ebola outbreak.
Steve Grasso, institutional sales director at Stuart Frankel & Co., believes there's one key level to watch over the next few days: that 200-day moving average of 1,905. Stocks could signal an extended downward trajectory, depending on how they close over the next few days.
"Right now the market is too skittish," Grasso said. "If we keep closing below that 1,905 level, we go dramatically lower."
Grasso tied the exit from stocks to Ebola. "What is the exodus at the end of the day? It was the Ebola headlines."
Finally, a brand new exogenous event has emerged in the headlines that is also making traders worried. There are multiple credible reports that ISIS, the Jihadist terrorist organization, has obtained and used chemical weapons against Kurdish civilians in Iraq and Syria. If this turns out to be true, it could signal a serious, dangerous escalation in the conflict with ISIS.
10.13.14 - Gold Strengthens as Stocks Tremble
Gold prices end higher, hitting a 4-week high, on safe haven demand and bargain hunting. U.S. stocks end sharply lower on global growth concerns. Gold last traded at $1,236 an ounce. Silver at $17.50 an ounce.
Gold has started this week just as it ended last week: on the upswing.
Gold's continuing rally can be attributed to uncertainty about how soon and whether the Federal Reserve will raise interest rates along with worries about the global economy reducing investor appetite for risk.
The metal is now trading at a 4-week high after hitting a 15-month low just last week.
Gold's gains were helped by a lower dollar after Fed officials warned over the weekend that if the global recovery stumbled, it could delay an increase in U.S. interest rates.
"The expectations for a rate hike have been pushed back by at least a quarter so now we are not looking at the first half but the second half of 2015 and that is potentially going to limit the aggressiveness of the dollar's upward move,'' Saxo Bank senior manager Ole Hansen said.
A delay in raising interest rates would be seen as positive for gold, a non-interest-bearing asset, and negative for the dollar.
Meanwhile, global stock markets remain under pressure both from weak economic data and after credit rating agency Standard & Poor's lowered its outlook on France from to 'stable' to 'negative'.
Financial author Michael Sincere today joined the chorus of experts warning about an extended fall in stocks when he wrote that "this is the most dangerous stock market since 2008."
Sincere went on to say: "When fear does hit the market, there will be a mad rush out the door that will remind investors of 2008."
That process has already started in the Russell 2000 small cap index, with many stocks--including some household names--down 40% or more for the year. Zynga, Groupon, Rite Aid, Pandora, SeaWorld Entertainment, Herbalife, Kate Spade and AMD are among 27 stocks down sharply and steeply, anywhere from 40% to 73%.
Silicon Valley venture capitalist Peter Thiel, who has already sounded the alarm about the stock market, is now making a convincing case that the bubble has been created by our government, calling current conditions a "government bubble of massive size."
Thiel also has another ominous warning for investors. While many realize that the stock market is in jeopardy, Thiel points out that the bond market is the most distorted of all the markets.
This means investors looking for safety and security need to look to gold, since it has historically moved independently of stocks and bonds.
10.10.14 - Gold Has Largest Weekly Increase In Four Months
Gold prices end slightly lower on a stronger U.S. dollar and profit taking. U.S. stocks trading lower and suffer weekly losses after a volatile week of trading. Gold last traded at $1,221 an ounce. Silver at $17.30 an ounce.
This week has seen a dramatic reversal in the fortunes of various asset sectors.
The price of gold is now headed to its largest weekly increase in over 4 months and stocks have been blasted by concerns over everything from slow growth in Europe to the spread of the Ebola virus. The NASDAQ is set to have its worst week since April.
The faltering world economy has most observers believing that world central banks will be pulling out the stops with continued "stimulus" programs in an attempt to jump start respective national economies. The minutes from the recent Federal Reserve Open Market Committee meeting released yesterday would seem to confirm that.
Those minutes revealed members of the committee were concerned that the global economic slowdown could negatively impact the US economy, so they expressed the overall intention to hold US interest rates near zero for a “considerable time.”
The US central bank was not alone. European Central Bank President Mario Draghi pledged yesterday to expand stimulus measures if needed, while Governor Haruhiko Kuroda said the Bank of Japan has many options for additional easing as well.
Lindsey Group's chief market analyst, Peter Boockvar says that the Federal Reserve meeting minutes released this week point to a reversal for gold, mainly because of unease that Federal Open Market Committee officials voiced about the dollar's strength against foreign currencies.
When policymakers express concerns that the dollar might get too strong, the smart money moves to gold for two reasons:
1. Gold is priced in dollars, so when the dollar declines, which seems to be what the Fed wants, the price of gold in dollars naturally increases.
2. Because the dollar is still currently the world's reserve currency of choice, gold is its natural rival as a reserve asset. When confidence in the strength of the dollar declines, money gravitates to gold as a more secure asset of last resort and medium of exchange.
Some observers, notably Peter Schiff, not only see continued near-zero interest rates ahead, but also a new round of Quantitative Easing, despite the Fed's program to unwind that program currently in progress. Schiff says conditions will essentially force the Fed to ramp up Quantitative Easing anew sometime in the months ahead. This is another bullish sign for gold and negative sign for the US dollar.
10.9.14 - Gold Prices Rally As Analysts See Bull Cycle Taking Shape
Gold prices end sharply higher, hitting a 3-week high, as investors show reservations about the strength of the U.S. dollar. U.S. stocks end lower on profit taking after the main benchmarks recorded their biggest one-day gains of the year in the previous session. Gold last traded at $1,225 an ounce. Silver at $17.42 an ounce.
Yesterday the financial markets paused, as they customarily do, while awaiting the minutes from the most recent Federal Reserve Open Market Committee meeting.
The results are in and the conditions in the gold market have shifted to a decidedly bullish posture.
That's because the minutes from the meeting showed that members of the committee are concerned that the recently strengthening US dollar could pose a threat to the earnings of US corporations.
This is seen as a signal that the Fed won't raise interest rates any time soon, despite speculation from some quarters.
Not surprisingly, the US dollar is weakening and gold is strengthening.
Gold had been trading at a low for 2014 just 3 days ago, a sensational buying opportunity. But the buying opportunity in gold is still terrific given the price is still relatively low and sentiment has shifted.
One additional factor that will impact the value of the dollar over the longer-term is the challenge being posed by China to have its yuan supplant and, perhaps, replace the US dollar as a medium of exchange and reserve asset.
Yesterday something happened that will doubtlessly boost that process: China just overtook the US to become the world's largest economy, according to the International Monetary Fund.
The method used by the IMF to measure national economies adjusts for purchasing power parity. The simple logic behind this method is that prices aren't the same in each country.
So the IMF measures both GDP in market-exchange terms and in terms of purchasing power. On the purchasing-power basis, China is overtaking the US right now and becoming the world's biggest economy.
According to the IMF, by the end of 2014, China will make up 16.48% of the world's purchasing-power adjusted GDP (or $17.632 trillion), and the US will make up just 16.28% (or $17.416 trillion)
This will continue to boost China's clout economically and in the financial world, which will aid its efforts in promoting the yuan at the expense of the US dollar. This will push up the price of gold in dollars.
10.8.14 - The Economic And Financial Cost Of Ebola
Gold ended the day lower, but strengthened in electronic trading after Fed minutes. U.S. stocks recover losses, closing up nearly 2% after Fed minutes showed that the Federal Reserve cut their growth outlook. Gold last traded at $1,206 an ounce. Silver at $17.06 an ounce.
The financial world - in fact, the whole world - has a serious worry on its collective mind: Ebola, the deadly virus that seems to be spreading out from West Africa.
In addition to the obvious humanitarian impact of Ebola, there will no doubt also be an economic and financial cost. That already became apparent overnight when European stock markets tumbled across the board, largely due to concerns of an Ebola outbreak in Spain.
Airlines and other travel shares are being especially hard hit due to Ebola fears. Should this situation accelerate, it could literally touch off a depression in the travel and hospitality industry.
Ebola aside, other factors of course continue to influence the financial markets.
As of press time, Wall Street is paused, awaiting the release of the Federal Reserve Open Market Committee (FOMC) minutes later today for additional clues as to upcoming Federal Reserve monetary policy. Essentially, everyone on Wall Street is still trying to guess when the Fed may start to raise interest rates.
Another worry is the faltering European economy. In today's interconnected world, when a major region suffers economically, the rest of the world cannot escape the effects.
Sentiment in the US is certainly not positive. According to a CNBC survey, Americans' approval of President Obama's handling of the economy stands at the lowest level of his presidency. 44 percent of the public says they have no confidence at all in the president on the economy.
This is showing up in declining confidence in the stock market, with more and more investors coming to the realization that the market is vulnerable.
10.7.14 - China Seeks To Replace U.S. Dollar With Yuan As The World's Reserve Currency
Gold prices extend gains on weak stocks and softer U.S. dollar. U.S. stocks end sharply lower, suffering worst drop in more than two months. Gold last traded at $1,212 an ounce. Silver at $17.24 an ounce.
There is no doubt China is making moves to establish world supremacy economically and financially through a number of methods.
One chief method is something we've written about frequently: China seeks to have the yuan supplant and eventually replace the US dollar as the world's reserve currency of choice and become a major international medium of exchange.
China has been cooperating primarily with Russia in this regard - the Russians' motives are likely political - but also Iran, some European nations and some Asia-Pacific nations as well.
As the world's No. 2 economy after the US, China believes it is close to earning the status of a reserve money, the first time an emerging market currency would attain this position.
Former Federal Reserve Chairman Alan Greenspan wrote in Foreign Affairs magazine that he believes China will increase its gold holdings in a "big way," with an eye toward making the yuan convertible to gold.
China has been accumulating big gold positions for many years now for one paramount reason: it has also accumulated trillions in United States government debt. The value of the dollar and the price of gold move in opposite directions. It’s essentially an inverse relationship. Thus the Chinese ensure their dearly-bought reserves stay at par value.
Greenspan believes, should China one day announce the convertibility of its currency to gold, it could transform the country into a world monetary leader by prompting other nations to follow suit with their currencies.
Greenspan says this explains why so many world central banks maintain large gold reserves even though many of the central bankers themselves talk down the role of gold.
Watch what people DO, don't just listen to what they SAY!
In the here and now, US stocks have been slammed once again in trading today, but this time due to concerns about an economic slowdown emanating from Europe.
Investors are fretting over increased signals of slowing growth in Europe and pondered the impact on quarterly earnings from U.S. corporations that operate in the European market.
German industrial output fell by 4 percent in August, with the worse-than-expected drop coming a day after the country's industrial orders had their largest monthly decline since the global financial crisis in 2009.
Adding to these worries was the International Monetary Fund (IMF) cutting its global growth forecast for the remainder of 2014 and all of 2015.
This development comes less than a month after the Organization for Economic Cooperation and Development (OECD) slashed its expectations for the global economy over concerns about a stuttering recovery in the U.S. and the continued fragility of the euro zone.
Speaking of the IMF, its World Economic Outlook was released today. Its Research Director, Olivier Blanchard, said the world's economic recovery was "weak and uneven and remains susceptible to many downside risks." This is far different from the rhetoric coming from the Obama administration.
Among the risks facing global economies, the IMF reports, are rising interest rates, geopolitical risks and the euro zone's stalling recovery.
Finally, the US Bureau of Labor Statistics' Job Openings and Labor Turnover Survey was released today and it included a little-noticed but not insignificant statistic that hiring last month hit its lowest level since the very cold January of this year; and represented the biggest month to month decline since June of 2010. This could very well signal weakness in the US economy on the horizon.
10.3.14 - Details Of Jobs Report Tell An Entirely Different Story
Gold prices end lower on upbeat jobs data. U.S. stocks end sharply higher following a stronger-than-expected monthly jobs report. Gold last traded at $1,192 an ounce. Silver at $17.48 an ounce.
Once again the Labor Department has released a rosy employment report. And once again, a deeper analysis of the details shows the report is quite misleading when it comes to the actual health of the US economy.
The report indicates that jobs growth accelerated in September and hiring during the summer was stronger than initially reported. The U.S. added 248,000 jobs in September, more than consensus forecasts from economists. Unemployment also fell to 5.9% from 6.1%.
Now the details, which aren't so pleasing.
More Americans also stopped looking for jobs, reducing the percentage of people in the labor force to a 36-year low. The participation rate in September fell a tenth to 62.7%, marking the lowest level since February 1978. The government unemployment report also masks another negative factor — a large and growing number of Americans who want to work more hours but are unable to do so. Those people are no longer considered unemployed but are in no way whole as compared to where they were less than a decade ago.
A number of economists look past the "main" unemployment rate to a different figure that the Bureau of Labor Statistics calls "U-6," which it defines as "total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers." In other words, the unemployed, the underemployed and the discouraged—a rate that still remains high. The U-6 rate is 11.8 percent.
In other news, there was an event reported overnight that has serious implications for Americans concerned about their financial privacy. J.P. Morgan Chase, one of America's largest, most sophisticated financial conglomerates, suffered a security penetration resulting in a data breach that affected 76 million households and 7 million small businesses.
Customer names, addresses, phone numbers and e-mail addresses were taken. Hackers also obtained internal data identifying customers by category, such as whether they are clients of the private-bank, mortgage, auto or credit-card divisions. At this point the bank claims no account information was accessed and the bank also says it has not detected any fraud associated with the breach. Nevertheless, this incident illustrates all too vividly how vulnerable our financial privacy is in the cyber age.
Finally, it is no secret that China seeks to promote its currency, the yuan, as a reserve currency and an international medium of exchange, at the expense of the dollar. The recent establishment of the Shanghai Gold Exchange is a sign the Chinese will use gold as a tool in that quest by seizing control over gold pricing mechanisms from the COMEX in the USA. This would result in a global currency reset and move the yuan to the fore and overshadow the US dollar.
10.2.14 - IMF Cuts Global Growth Outlook
Gold prices remained flat ahead of key unemployment report due out Friday morning. U.S. stocks swung between gains and losses on Ebola fears and mixed economic data. Gold last traded at $1,215 an ounce. Silver at $17.48 an ounce.
For months, if not years, the Federal Reserve and the Obama administration have been touting America's economic "recovery."
Now it appears that independent authorities are contradicting those dubious assertions and the stock market is reacting.
U.S. stocks are declining for a fourth straight session today, extending their worst start to October in three years, as the International Monetary Fund (IMF) called the global economy softer than thought.
According to the managing director of the IMF, Christine Lagarde, the global economy could be stuck in a weak growth rut for a long time as countries struggle to pull free from a past of high debt and unemployment.
Lagarde chronicled a series of "clouds on the horizon" that could hurt the global economy, including central banks' differing plans to raise interest rates.
"The longer easy money policies continue, the greater the risk of fueling financial excess," she said.
In other words, the IMF is worried about a bubble.
Lagarde warned that financial risks could emerge as asset valuations in advanced economies have shot up while volatility stays low; and riskier transactions start to migrate to the shadow banking sector.
Geopolitical risks could also derail the recovery, she said, pointing to turmoil in Ukraine, the Middle East and some parts of Asia, as well as the outbreak of the deadly Ebola virus in West Africa.
The European Central Bank seems determined to fuel the bubble that Lagarde fears. Just yesterday the European Central Bank (ECB) announced it was purchasing 1 trillion euros worth of debt instruments to inject liquidity into the European economy.
Loans and mortgages worth as much as one trillion euros ($1.3 trillion) -- including some junk-rated assets from Greece and Cyprus -- qualify as assets that will be purchased by the ECB over two years.
European monetary policy has created a whole new set of problems for money market funds there. In fact, it may just destroy them. The ECB has imposed a negative deposit rate of -0.2% on reserves held at the bank, making it exceedingly difficult for cash equivalents traditionally held in money market funds to be viable. About 500 billion euros is invested in European money market funds and officials are worried about the possibility of mass withdrawals, cratering the industry as people resort to keeping money "in the mattress" rather than risk it in money market funds that have always previously been considered "safe."
Back here in the US, there are fresh signs (yes, again) that the US economy is less than healthy.
Orders to U.S. factories fell in August by the largest amount on record (10.1%). Wall Street is trying to make excuses for the drop and explain it away as an anomaly, but this is increasingly difficult as these anomalies become more and more common.
When the New York Times is doubting the health of the US economy, you know that the Obama administration is losing the propaganda war. The Times published an article today pointing out--as many of us have been doing for months--that the US unemployment rate masks serious economic problems. An excerpt:
"There are at least two special factors that are distorting the unemployment rate’s signal. First, there are over seven million involuntary part-time workers, almost 5 percent of the labor force, who want, but can’t find, full-time jobs. That’s still up two percentage points from its pre-recession trough. Importantly, the unemployment rate doesn’t capture this dimension of slack at all — as far as it’s concerned, you’re either working or not. Hours of work don’t come into it.
The second special factor masking the extent of slack as measured by unemployment has to do with participation in the labor force. Once you give up looking for work, you’re no longer counted in the unemployment rate, so if a bunch of people exit the labor force because of the very slack we’re trying to measure, it artificially lowers unemployment, making a weak labor market look better.
That’s certainly happened over the recession and throughout the recovery, but it’s been mixed in with a more benign source of labor force exits: the retirement of aging baby boomers. So economists have scurried about trying to figure out how much of the three-percentage-point decline in the labor force participation rate, from about 66 to 63 percent, to attribute to slack and how much to so-called structural (vs. cyclical) factors."
10.1.14 - Government Has Our Country In A Fiscal Mess
Gold prices end higher as investors dumped riskier assets for the safety of gold. U.S. stocks plunge as investors worry that the Fed may raise interest rates sooner than later. Gold last traded at $1,215 an ounce. Silver at $17.48 an ounce.
Today is the first day of the new fiscal year for the federal government and thus an opportune time to point out the fiscal mess the government has our country in.
The U.S. federal government alone is borrowing some $8 trillion per year. When discussing the national debt, most people tend to only focus on the amount that it increases each 12 month period. The U.S. national debt has increased by more than $1 trillion during fiscal year 2014.
But that does not count the huge amounts of U.S. Treasury securities the federal government must redeem each year. When these debt instruments hit their maturity date, the U.S. government must pay them off. This is done by borrowing more money to pay off the previous debts. In fiscal year 2013, redemptions of U.S. Treasury securities totaled more than $7 trillion and new debt totaling more than $8 trillion was issued. The final numbers for fiscal year 2014 are likely to be significantly higher than that.
So what happens when the rest of the world decides it does not want to loan us $8 trillion a year at ultra-low interest rates?
Well, the game of musical chairs will be over and America will be in a massive amount of trouble.
In investment news, evidently many are making the mistake of switching from stocks to bonds right now. This is literally a case of jumping out of the frying pan into the fire because when interest rates inevitably climb higher, the prices of existing bonds will automatically decline. Unfortunately, many investors still don't understand this phenomenon.
A much wiser move in the current environment is to diversify out of stocks and bonds into gold, which is still trading at bargain levels, in fact at 9-month lows. And that appears to be happening.
Sales of US Mint American Eagle gold coins more than doubled during September from August's levels, with sales coming in at 58,000 ounces, the highest sales levels since January.
Finally, overseas, in Japan, an event occurred that showed just how vulnerable markets and investors are in today's highly automated, computerized world. Share orders worth several billions of dollars were cancelled in Japan due to a "fat finger" trading error.
9.30.14 - Economic Reports Show Stagnating U.S. Economy
Gold prices end lower on a stronger U.S. dollar. U.S. stocks lower on a mixed bag of economic reports. Gold last traded at $1,211 an ounce. Silver at $17.05 an ounce.
Three more signs emerged today that the US economy is stagnating.
• The housing market is slowing down. According to S&P/Case-Shiller’s 20-city composite index, after seasonal adjustments, home prices among the 20 cities fell 0.5% in July — the biggest drop since October 2011 — compared with a 0.3% decline in June. Through July, home prices were still about 16% below a 2006 peak.
This is significant because there has seldom been a strong economic recovery in the US that didn't include a strong real estate market.
• U.S. consumers turned pessimistic on the economic outlook in September, according to data from The Conference Board. The organization said Tuesday its gauge of consumer sentiment tumbled to 86 in September from 93.4 in the previous month, with expectations also falling sharply, to 83.7 from 93.1. Economists in a consensus survey expected the index to edge up to 92.5 in September, against the prior month's reading of 92.4.
This is important because consumers play a major role in US economic activity; when they are feeling less confident, that translates into a stagnant economy.
• A closely watched barometer of business conditions in the Midwest weakened more than expected in September. The Institute for Supply Management-Chicago business barometer fell to 60.1 in the month.
These three separate, unrelated gauges demonstrate that the US economy is not healthy and that the underlying economic fundamentals certainly do not support the record-high levels at which the stock market has been trading.
Meanwhile, China's assault on the dollar continues.
China will start direct trading between its yuan and the euro tomorrow as the world’s second-largest economy seeks to spur global use of its currency--at the expense of the US dollar.
The move will lower transaction costs and so make yuan and euros more attractive to conduct bilateral trade and investment.
9.29.14 - Hong Kong Protests Causes Concern On Wall Street
Gold prices climb ahead of another batch of economic data. U.S. ended lower as investors turn to safe havens amid unrest in Hong Kong. Gold last traded at $1,218 an ounce. Silver at $17.48 an ounce.
A new factor emerged on the world stage over the weekend and Wall Street is reacting negatively.
Stocks dropped today after worries about pro-democracy protests in Hong Kong spilled over to the US, Asian and European stock markets.
There are some questions over whether the protests in Hong Kong could spread to mainland China.
Wall Street is worried that such protests could potentially slow down the Chinese economy, which has been a source of both demand and supply-driven global economic growth for years.
Today's losses come on the heels of a rough week for the stock market. The S&P 500 and NASDAQ indexes are both down over around 1.5% for the month of September, which is often known as a tough one for stocks.
Gold rose today mainly on weakness in the stock market stemming from worries over China. In fact, there are fresh signs that demand for gold among those who have recently exited the stock market is accelerating. Demand for the precious metal is growing among the super rich. The world's wealthy are buying record numbers of gold bars. Geopolitical tensions in the Middle East and elsewhere had strengthened the metal's appeal.
Another analyst is declaring that the world economy is in a bubble phase that will result in a steep, sudden drop.
Steen Jakobsen, chief economist at Danish investment bank Saxo Bank, wrote in a notice to clients that the world's three economic superpowers - the US, China and Europe - are heading for a major collapse in asset values.
Unsustainable debt will be the cause of the crash, according to Jakobsen, and will occur when the cash returns on assets become insufficient to service the debt taken on to acquire those assets in the first place. Jakobsen calls debt the "elephant in the room."
"No serious policymaker or central banker is talking about the truth told by simple maths and hoping that things turn out well. Hope is not good policy and it belongs in church, not in the real economy."
Meanwhile, the National Association for Business Economics said that its member economists have lowered their estimates for third-quarter U.S. gross domestic product (GDP) growth.
9.26.14 - Strong GDP Report Contains Disturbing Hidden Details
Gold prices fell lower on a stronger dollar and upbeat economic data. U.S. stocks head higher, but still close the week lower. Gold last traded at $1,215 an ounce. Silver at $17.48 an ounce.
Despite a strong Gross Domestic Product (GDP) report this morning, the future of the US economy remains uncertain as this positive GDP report contains some largely hidden and disturbing details.
The increase in GDP was mainly driven by gains in business spending, in which mandatory, forced Obamacare outlays led to a $17.5 billion chained-dollars increase in healthcare spending. This is hardly a positive business investment. It's more like a tax, but in the government's accounting world it gets categorized as contributing to GDP.
There was also a recent profit definition change that has caused some wobbling in GDP numbers--more government accounting gimmickry.
Furthermore, the Personal Consumption component of the overall GDP figure, which was expected to rise 2.9%, instead came in at a disappointing 2.5%. Given that consumers are a key driver of the US economy, this is indeed a troubling factor in what is being touted as a positive report.
Despite the robust GDP numbers, unemployment continues to be mired in mediocrity.
A new report from the minority side of the Senate Budget Committee shows a startling fact: Almost one in four Americans between the ages of 25-54 (or prime working years) are not working.
Of the 124.5 million Americans in their prime working years (ages 25–54), nearly one-quarter of this group - 28.9 million people, or 23.2 percent of the total - is not currently employed. They either became so discouraged that they left the labor force entirely or they are in the labor force but unemployed. This group of non-employed individuals is more than 3.5 million larger than before the recession began in 2007.
Those attempting to minimize the startling figures about America’s vanishing workforce will say an aging population is to blame. But in fact, while the workforce overall has shrunk nearly 10 million since 2009, the cohort of workers in the labor force ages 55 to 64 has actually increased over that same period, with many delaying retirement due to poor economic conditions.
In fact, over two-thirds of all labor force dropouts since that time have been under the age of 55. These statistics illustrate that the problems in the American economy are deep, profound, and pervasive; afflicting the sector of the labor force that should be among the most productive.
Investment professionals also continue to be worried about a stock market bubble.
Barry Sternlicht, Starwood Capital Group chairman and CEO, warned today on CNBC that, "there are more obvious light switches today or ticking time bombs compared with the lead-up to the 2008 downfall. The whole macro global situation is not good."
Not everyone in the world is being complacent.
Top bullion consumer China has been importing more gold in September than in the previous month and demand for gold in India - the second biggest buyer of the metal - is also set to pick up.
9.25.14 - U.S. Stock Market Gets Slammed
Gold prices end higher on bargain hunting and short covering. U.S. stocks suffer steepest drop in 2 months. Gold last traded at $1,221 an ounce. Silver at $17.51 an ounce.
The US stock market has been slammed today by a series of negative factors while safe haven demand for gold is picking up steam.
One factor worrying Wall Street is the report that Russia was considering a measure allowing its courts to seize foreign assets.
Reuters reported the draft law, submitted to Russia's parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for those whose assets were taken in foreign jurisdictions.
The measure is viewed as a threat from the Kremlin that the Russian-U.S.-Europe conflict might take a turn for the worse economically. The draft law was intended as a response to Western sanctions over the Ukraine crisis.
In domestic economic news, durable goods orders plunged in August by a whopping 18.2%. A Federal Reserve report earlier this month showed manufacturing production fell 0.4% in August.
Back overseas, a Wall Street Journal report on changes in the leadership of China's central bank added an edge of uncertainty to the financial markets as well.
Also weighing on the US stock market is a significant trading event in Europe; the German DAX fell below its 200-day average, which it has not closed below since early September.
Also adding to fears on Wall Street was a claim from the Prime Minister of Iraq that his security services had uncovered a plot for an attack on subway systems in the United States and Paris.
It's not surprising in the current environment that demand for gold is rising. The U.S. Mint reports sales of nearly 50,000 ounces of American Eagle gold coins so far in September, almost double its total in August, as bargain gold prices and geopolitical tensions boosted interest for physical products from retail investors.
9.23.14 - U.S. Stock Market Facing More Threats Than Ever
Gold prices end higher on short covering and safe-haven demand. U.S. stocks fall for third straight session on weak Eurozone data and escalating war in the Middle East. Gold last traded at $1,222 an ounce. Silver at $17.71 an ounce.
It wasn't a surprise, but it nevertheless served as a small shock to the financial system; the US, along with a few Arab allies, began conducting an air campaign against ISIS and other terrorists in Syria overnight.
This resulted in sharply lower stock markets in the US and Europe and a rebound in gold.
There is a general fear in the financial world that the new US-led air campaign is opening a new, far more complicated front in the battle against the militants.
European stocks were also hurt by a report that showed the economy of the 18-country eurozone is failing to find any renewed momentum. In its monthly survey, financial information company Markit said its eurozone purchasing managers' index, a closely watched gauge of business activity, had fallen to a nine-month low in September.
The stock market faces more threats than ever now and many key players have moved to the sidelines.
Market skeptics warned that the hype over last week's much-heralded Alibaba IPO could be telegraphing a stock market top. The weak stock market action since early Friday does little to torpedo that bearish prediction.
Small stocks won the Wall Street performance derby last year, with the Russell 2000 small-cap index gaining 37% vs. a gain of 29.6% for the large-company S&P 500. But the small fries are this year’s biggest laggards and, as a result, the market has lost its market leader.
“It has felt to us for some time that we are entering a correction or bear market,” says Patrick Adams, a money manager at Choice Investment Management. “Smaller companies have performed poorly this year.”
But what worries Adams is the weakness below the surface of the major indexes. The losses of individual stocks are adding up, despite the fact that the broad S&P 500 remains near record highs. In other words, fewer stocks are doing well.
“The market is getting narrow and losing breadth,” says Adams. “It sure feels like a down move in the market or it will occur soon.”
While markets have shrugged off geopolitical flareups in Ukraine, Gaza and to this point Iraq and Syria, it is unclear how long investors can ignore the growing threats from abroad.
Citi strategist Tina Fordham wondered aloud in a research note how long markets can shrug off geopolitical turmoil.
“In the short-term, we think investor indifference to geopolitical risks is largely justified,” Fordham told clients. “But given deteriorating security and political fundamentals, and the prospect of waning (Fed asset purchases), this is unlikely to last.”
Gold is an ideal insurance policy against political, economic and financial risk.
The world's biggest investors are clearly wary of a stock market top.
Billionaires are holding mountains of cash, offering the latest sign that the ultra-wealthy are nervous about putting more money into today's markets.
According to the new Billionaire Census from Wealth-X and UBS, the world's billionaires are holding an average of $600 million in cash each.
In today's increasingly frothy market environment, and after the hangover of 2009, today's billionaires prefer a return OF their assets rather than risking a return ON assets.
There is also mounting evidence we are in a tech bubble that rivals the tech bubble of 2000 when companies with no revenue were somehow valued at billions of dollars.
Several top Silicon Valley insiders are now hoisting the red flag saying enough is enough.
Bill Gurley, one of the most successful venture capitalists in the world, told the Wall Street Journal last week that “Silicon Valley as a whole . . . is taking on an excessive amount of risk right now. Unprecedented since ’99.”
Fred Wilson of Union Square Ventures echoed this sentiment on his blog, railing against the widely accepted model that it’s acceptable for companies to be “[b]urning cash. Losing money. Emphasis on the losing.”
George Zachary of Charles River Ventures wrote, “It reminds me of 2000, when investment capital was flooding into startups and flooded a lot of marginal companies. If 2000 was a bubble factor of 10, we are at an 8 to 9 in my opinion right now.”
There has been extensive speculation about interest rate hikes from the US Federal Reserve. That obviously would be wildly unpopular on Wall Street, but it would also be just as unpopular in Washington DC.
That's because a rate hike would immediately raise the cost of interest on the national debt.
As things stand now, the national debt totals $17.8 trillion. That's nearly $56,000 for every man, woman and child in this country. Forecasts indicate it will go higher.
The Fed's ultra-low interest rate policy has helped limit the pain for the ongoing budget deficit and growing national debt by limiting the damage from interest expenses. But with monetary policy on track to normalize, amid a strengthening in the economy and a tightening job market, the costs of carrying so much debt are about rise, attracting fresh attention to these divisive fiscal issues.
If the federal government based its forecast estimates on interest rate projections that prove to be too low, the effect on the budget outlook could be severe. More interest means more debt, which means more interest.
America will spend $233 billion on interest expenses in 2014. The federal interest expense could total an extra $650 billion over the next five years relative to current lower interest rate estimates. And the national debt will be nearly $700 billion higher than it would have otherwise been.
The takeaway from this is that the national debt/deficit problem remains unresolved and that alone is a big reason to be skeptical of any rally in the US dollar and to keep gold on hand over the long-term.
9.22.14 - More Economic Reports Point To Struggling U.S> Economy
Gold prices end flat on bargain hunting and a stronger U.S. dollar. U.S. stocks close sharply lower as investors worry over falling commodity prices and concerns about global growth. Gold last traded at $1,217 an ounce. Silver at $17.70 an ounce.
As we start another week, there are fresh economic reports that point to a US economy less strong than the Obama administration and the Fed have been claiming. In addition, a new technical factor in the stock market is pointing to trouble. To top it all off, geopolitical factors are beginning to emerge once again.
The US economy has bumped along the bottom for over six years now and it's taking a toll on a generation of wealth earners. Gen Xers (born between 1965 and 1980) are now less well off than their parents were at this point in their lives. They are on track to be the first in recent history to fall behind previous generations in terms of wealth accumulation, a key indicator of economic security.
One problem plaguing all ages in the US has been chronic unemployment. More than 20% of Americans laid off the past five years are still unemployed and one in four who found work found only a temporary job, according to a survey released by the Heldrich Center for Workforce Development at Rutgers University. Workers fortunate enough to land full-time jobs often take significant pay cuts. Forty-six percent of those who found jobs after being laid off said their new job pays less than their previous one. Nearly half of those out of work at least six months during the past five years estimate it will take three to 10 years to recover financially from the recession.
Every true economic recovery in the modern era has included a robust housing and real estate market. That's why many doubt the strength of the current economy. U.S. home resales unexpectedly fell in August as investors stepped away from the market. The National Association of Realtors reported today that existing home sales dropped 1.8 percent to an annual rate of 5.05 million units. Economists had forecast sales increasing to a 5.20 million-unit pace. Compared to August last year, sales were down 5.3 percent.
There is a new technical indicator that the stock market could be headed for trouble.
The Russell 2000 Index has been diverging from the broader market over the last several weeks, and now technicians point out it has flashed a bearish signal. For the first time in more than two years, the small-cap index has hit a so-called death cross.
A death cross occurs when a nearer-term, 50-day moving average falls below a longer-term, 200-day moving average. Technicians argue a death cross is a bearish sign.
Hitting a death cross could potentially propel the Russell 2000 lower and push the index closer to correction territory; a significant level watched by traders that is 10 percent below this index's all-time high.
The world is only now beginning to feel the fallout from the emergence of the terrorist organization ISIS in Iraq and Syria.
There has been a new and massive flow of refugees from areas that ISIS controls. The sudden, massive flood of refugees fleeing ISIS is unlike any other displacement in the 3.5 year Syrian conflict. As many as 200,000 people have left the area surrounding the Syrian Kurdish city of Kobani, also known as Ayn al-Arab, in just four days as ISIS advances into the area. Most have gone into Turkey. The number of Syrian refugees now in Turkey since the beginning of the conflict is approaching 1.6 million with no end in sight.
The conflict could be coming to the US as well, possibly creating a terrorist threat here. The White House confirmed this morning that some Americans who have fought alongside the ISIS terrorist group have returned to the United States. In some cases, the FBI has lost track of them.
As the United States begins what could be a lengthy military campaign against ISIS; intelligence and law enforcement officials said another Syrian group, led by a shadowy figure who was once among Osama bin Laden’s inner circle, posed a more direct threat to America and Europe.
American officials said that the group, called Khorasan, had emerged in the past year as the cell in Syria that may be the most intent on hitting the United States or its installations overseas with a terror attack.
The officials said the group is led by Muhsin al-Fadhli, a senior Qaeda operative who, according to the State Department, was so close to Bin Laden he was among a small group of people who knew about the September 11, 2001 attacks before they were launched.
There is almost no public information about the Khorasan group, which was described by several intelligence, law enforcement and military officials as being made up of Qaeda operatives from across the Middle East, South Asia and North Africa. Members of the cell are said to be particularly interested in devising terror plots using concealed explosives. It is unclear who, besides Mr. Fadhli, is part of the Khorasan group.
9.19.14 - Scotland Votes To Stay Part Of Great Britain
Gold prices end lower on a stronger U.S. dollar and positive jobs data. U.S. stocks end higher, Dow hits record high on positive economic news. Gold last traded at $1,216 an ounce. Silver at $17.78 an ounce.
Yesterday Scotland voted on whether or not to declare their independence from Great Britain. By a substantial margin, Scottish voters elected to stay part of Great Britain. Markets were heartened by this move, which essentially maintains the status quo. It should be pointed out, however, that this episode may spark secessionist movements in other parts of Europe, something that will definitely not cheer the markets going forward.
Gold has been declining recently due to dollar strength touched off by expectations of higher interest rates soon. In fact, gold is now at a low for the year.
As all investors should know, the key to successful investing is ultimately to buy low and sell high.
Right now, an opportunity exists to buy gold at a significant low and sell stocks at an all-time high.
There are some factors at work that need to be explained with regard to the dollar, interest rates and gold.
First of all, though the dollar has experienced some strength recently, it is very difficult to foresee a scenario in which the dollar has sustained strength. After all, the US national debt is over $17 trillion still and the current annual budget deficit is well over $500 billion. This is an unsustainable path. Sooner or later the US will have to service that debt with dollars cheapened by inflation. Over the long-term, this is like an anvil attached to the value of the dollar.
Second, many investors--and financial journalists--are too young to remember the late 70s and early 80s when gold experienced a huge bull market. Interest rates were rising and the prime rate hit the sky-high level of 21% at the same time the price of gold soared to a then-record level of over $800 per ounce. So, the narrative currently being floated around the financial world that rising interest rates are a death blow for gold does not stand up to historic, factual analysis.
Finally, one thing that HAS been true more often than not, is that rising interest rates are very bad news for the stock market. Many analysts, such as Marc Faber, are saying that rising interest rates will be the pin that bursts the current stock market bubble, touching off what could be the first major correction since 2011 or possibly even the first bear market in 6 years (which is overdue by historic norms). Given that gold has had a negative correlation with stocks over the long-term, a bear market in stocks touched off by rising interest rates could very well prompt investors to flock to the safety and security of gold.
Given these facts, it would appear gold at such low levels represents a terrific opportunity for investors.
9.16.14 - Investors Focused On Fed Policy Meeting
Gold prices end higher on safe haven demand. U.S. stocks end higher as Fed fears fade. Gold last traded at $1,236 an ounce. Silver at $18.66 an ounce.
All eyes on Wall Street are now cast on the Federal Reserve as it begins its two-day policy meeting and will culminate in Fed Chair Janet Yellen's briefing to the media Wednesday afternoon.
Investors are focused on what Fed policy will be going forward. Will the Fed raise interest rates? How much and how soon?
It's not even certain that Yellen will deliver an accurate representation of what was discussed in the meeting in her press conference.
One long-time stock market bull is warning today that the market could be in for a rough ride in the near-term. Jeremy Siegel believes the Fed is actually "a little behind the curve" on interest rates, with signs rates are already rising.
He's among the market watchers who believe the Fed will drop the phrase "considerable time" in its policy statement Wednesday when referring to how long the central bank will keep interest rates low. That has the potential to spook the market.
While the Fed tends to dominate the attention of Wall Street at times like this, there are other factors and issues investors need to be cognizant of as well.
America's chief executive officers are far from optimistic about the economic outlook near-term. Corporate executives are scaling back plans for sales, capital spending and job creation this quarter, according to a Business Roundtable (BRT) survey, consistent with other indicators that have tempered growth expectations.
The group's Economic Outlook Index—a snapshot of CEO expectations for the next six months of sales, capital spending and employment—fell to 86.4 from 95.4 in the second quarter of 2014. The majority of the BRT's members see plans for capital investment, hiring and revenues falling from the second quarter, with job plans declining the most.
This does not bode well for the US economic outlook, again illustrating that the underlying fundamentals of the US economy are not strong enough to justify a high-flying stock market.
Much of Europe's attention is focused on Scotland, which will hold a referendum Thursday on whether or not it will remain part of the United Kingdom. This is having financial fallout. As we reported yesterday, gold demand in Scotland is way up. There are also fears of a bank run, particularly via ATMs and British banks are stockpiling currency in Scottish ATMs in anticipation, something that might exacerbate already nervous depositors.
The news is brighter for the gold market.
China may join other emerging countries in boosting gold reserves as the precious metal makes up a smaller share of its foreign-exchange holdings compared with developed economies, reports the World Gold Council.
Meanwhile, Carter Worth, chief market technician at Sterne Agee, is telling clients that the dollar is about the turn down-potentially leading the gold price to stage a serious rebound: "We think the massive rally in the dollar is overdone, and you actually can catch a pop in gold."
9.11.14 - Swiss America Remembers 9/11
Gold prices end lower on a stronger U.S. dollar supported by expectations the Fed will begin raising interest rates. U.S. stocks end lower on weaker-than-expected jobless claims and concerns about interest rate hikes. Gold last traded at $1,239 an ounce. Silver at $18.53 an ounce.
As Americans pause today to remember those who lost their lives on September 11, 2001, the markets are casting a wary eye toward the Middle East in the wake of a speech by President Obama last night announcing he will be expanding military operations against ISIS.
The news comes amid heightened nerves over terrorism in the U.S. on this 13-year anniversary of 9/11. Recent surveys indicate Americans feel less safe and secure than at any time since 9/11/2001.
Another factor on the minds of traders is a worrying inflation report out of China that showed that wholesale deflation intensified there in August, clouding the outlook for an economy struggling to stage a convincing recovery. Inflation figures remain well below official Chinese government targets, which would be good news in most countries, but not in China, which is the engine of growth both on the demand and supply side for much of the world.
A slowdown in China has the potential to ripple across oceans and borders and this is a big concern for the financial markets.
The stock market in the US is especially vulnerable to a pullback at this point and professional investors appear to be preparing for an outright stock market crash. George Soros, Carl Icahn and a growing number of hedge fund managers all seem to be preparing for a major downturn.
The speculation that the Fed could remove the language about keeping rates low for a "considerable time" has been contributing to a rise in bond yield, as Treasurys sell off. Stock traders have been eying those moves though Fed watchers are divided on whether the language will be changed when the Fed releases its post meeting statement September 17.
Stock traders know it is Fed pumping, not underlying economic fundamentals, that are driving stock market gains. They fear what will transpire when that Fed pumping slows down or comes to an end.
9.9.14 - Gold Presents Major Buying Opportunity!
Gold prices closed lower on expectations that the Fed may tighten monetary policy sooner than expected. U.S. stocks edge lower, S&P suffers steepest one-day decline in five weeks while NASDAQ dropped most since July 31. Gold last traded at $1,248 an ounce. Silver at $18.84 an ounce.
A terrific buying opportunity is emerging in gold right now as its price nears a 3-month low due to recent strength in the US dollar.
There are 3 primary reasons why this is such a good buying opportunity:
1. The recent strength in the dollar is likely to be temporary as there has been nothing in recent monetary and fiscal policy to suggest the dollar's outlook will improve over the longer-term. The US national debt is still over $17 trillion and growing since deficit spending is forecast to continue indefinitely. And the US Federal Reserve is still instituting a loose monetary policy with negative real interest rates. Despite rumors that the Fed will tighten, there is still a debate within the Federal Reserve Open Market Committee on that score and Fed Chair Janet Yellen has expressed concern over recent economic reports, particularly employment reports.
2. The stock market is at record heights unjustified by underlying economic fundamentals. More and more experts are warning that the stock market could pull back at any time--perhaps severely. Because gold has historically had an inverse relationship to stocks, this eventuality will push gold prices higher.
3. September has traditionally been the best seasonal month for the price of gold. The month is still young. History suggests that gold will emerge from September in better shape than it entered September.
An additional factor likely to boost gold: India, one of the world's largest consumers of gold, is entering its festival season, which usually results in increased gold demand.
The bigger economic picture in the US is one which prompt investors to stay on guard. The economy is far from healthy and the American people know it.
Wary Americans remain in a defensive posture when it comes to their pocketbooks, and for good reason. A majority still have some serious financial issues, with only 22 percent confident the economy will improve.
The Federal Reserve's recently published Survey of Consumer Finances confirms that this pessimism is grounded in reality. For 90% of Americans, real incomes have actually fallen over the past three years.
Moreover, average hourly pay has crept up only 2 percent a year on average since the recession officially ended five years ago -- far below the gains in most economic recoveries.
Meanwhile, the economic stagnation does not mean that inflation is non-existent. Quite the contrary, milk prices have hit a record high, a development that will have a ripple effect in other food prices including everything from cheese and butter to pizza and pastries.
9.4.14 - Experts Preparing For Stock Market Plunge
Gold prices end lower on a stronger U.S. dollar. U.S. stocks fall as investors await jobs report. Gold last traded at $1,259 an ounce. Silver at $18.99 an ounce.
The stock market continues to reach new heights in defiance of economic and financial data alongside warnings from a variety of experts.
World stock bourses are climbing higher today on a surprise move by the European Central Bank (ECB) to cut interest rates from already record low levels. In addition, the ECB said that it would commence open market operations in the form of buying packages of bank loans in an effort to pump liquidity into the European economy.
All of this is well and good until fundamentals and reality catch up with the party.
Not everyone has confidence in the future of the stock market. In particular, some of the financial world's billionaire superstars are pulling out of stocks.
"The stock market is at an all-time, but economic activity is not at an all-time," explains billionaire investor Sam Zell to CNBC, adding that, "every company that's missed has missed on the revenue side, which is a reflection that there's a demand issue; and when you got a demand issue it's hard to imagine the stock market at an all-time high."
Zell also added: "I don't remember any time in my career where there have been as many wildcards floating out there that have the potential to be very significant and alter people's thinking."
Zell's forecast should not be shocking following warnings from fellow billionaire investors George Soros, Stan Druckenmiller, and Carl Icahn that there is trouble ahead.
As gauged by the weekly Investors Intelligence report, bearishness among market newsletter writers has also fallen to 13.3 percent, a level it has not seen since 1987 as the market continues to set new highs despite a seemingly endless call for a long-overdue correction.
The last time investors had this little fear about stocks was 1987, the year of the biggest market crash in history. On the infamous Black Monday, Oct. 19 1987, the Dow Industrial plunged more than 22 percent.
9.2.14 - Keys News Articles Paint Positive Picture For Gold
Gold prices lower on a stronger U.S. dollar and lower oil prices. U.S. stocks end lower despite data showing U.S. manufacturing expanded at the fastest pace in three years. Gold last traded at $1,266 an ounce. Silver at $19.11 an ounce.
On the first US trading day of September there are several key news articles painting a positive picture for gold. September is traditionally a positive month for gold.
The biggest news has actually garnered very little attention--but it should!
As we have mentioned frequently in recent months, Russia, along with China, has been moving to displace the US dollar as the world's primary medium of exchange. Those efforts appear to be seriously escalating.
There are reports that Saudi Arabia--OPEC's largest oil exporter--is close to allowing the sale of oil and natural gas to be done in both Roubles and Yuan, bypassing the US dollar.
This has serious negative implications for the value of the dollar, which should result in an increase in the price of gold in dollar terms.
Meanwhile, there are signs that Indian gold demand is continuing its rebound over 2013 levels. The United Arab Emirates (specifically Dubai), which has historically been the primary trading post between East and West, reports that total gold demand in the UAE reached 25.4 tons in the first quarter of 2014. The 16% increase from Q1 in 2013, was largely driven by Indian tourists choosing to buy gold in the UAE. That is very bullish news since India has historically been the largest importer of gold in the world, only having been surpassed by China last year.
Gold demand is surging in China as well. The value of precious metals held by China’s largest lenders has surged 66% from a year ago as banks lease more gold. The lenders’ holdings were the equivalent of about 1,445 metric tons of gold, based on June 30 prices, up 55 percent from the year before. That’s more than the 1,054 tons that China’s central bank has in reserves, according to World Gold Council data.
Global economic news also seems supportive of higher gold prices going forward due to economic uncertainty.
There has been a sudden, and quite dramatic, collapse in global manufacturing as tracked by various Purchasing Managers Indices.
Out of the 26 countries that have reported so far, nine reported improvements in their manufacturing sectors in August, while 15 recorded a weakening, and two remained unchanged.
The biggest concern: virtually every core and peripheral Eurozone country of note (from France and Germany to Spain and Italy) saw substantial contraction.
Finally, as we mentioned above, September has traditionally been a positive month for gold. The same cannot be said for stocks. With the stock market already being overdue for a pullback, this should be a concern for investors.
Stocks have, on average, swooned in September, wiping out gains in the last 20, 50 and 100 years. Will history repeat itself this September?
Big institutional investors such as Blackstone and Wells Capital Management have raised concerns that this summer rally could grind to a halt.