USAGOLD/Peter Grant/06-02-17
Both gold and silver surged to new 5-week highs, following disappointing jobs data for May. The yellow metal is suddenly back within $20 of the high for the year at 1295.03. Silver is engaged in a retest of the important 17.47/65 resistance zone.
U.S. nonfarm payrolls for May came in at +138k, below expectations of +182k. April payrolls were revised lower to +174k, from +211k previously. And March was revised to just +50k, versus +79k previously.
The unemployment rate dropped to a 12-year low of 4.3%, largely due to a drop in the the labor force participation rate to 62.7%. According to Zerohedge:
• Civilian labor force dropped by 429,000 to 159.8MM
• Full-Time Jobs Tumble By 367,000, Biggest Drop In Three Years
• Workers aged 25-54 down 168,000
All-in-all it was a pretty bad report, particularly in light of the negative back-month revisions. U.S. yields and the dollar fell as prospects for further rate hikes beyond the June FOMC meeting dimmed.
Stocks on the other hand remain elevated, because good news is good news and bad news is good news when it comes to equities. The prospect of slower rate increases is going to keep shares attractive as investors are forced to take risks in the quest for returns.
Each June Incrementum publishes their In Gold We Trust report. It is an insightful and comprehensive annual review of the gold market. This year they cite a number of white, gray and black swans that would have a bullish impact on the price of gold.
A summary can be found HERE, but if you’re looking for a little light reading for this weekend, I encourage you to download the full report.
The report points out: In the past 100 years, 16 out of 19 rate hike cycles were followed by recession. And every financial crisis was preceded by rate hikes.
The Fed is walking a very dangerous line between trying to prick the asset price bubbles, and attempting to stave off the recession we all know is coming. When that recession ultimately comes, the Fed will have precious-little ammunition to counteract the contraction.
Incrementum also touched on a subject I wrote about earlier in the week:
Arguably, currency depreciation has been the biggest driver of gold’s appreciation over the last 80-some years. With the multi-year rally in the dollar looking increasingly tenuous — the dollar index set a new 6-month low today — gold may be staging for a fresh run to the upside.
So what does Incrementum have to say about price expectations?
While a $1000 gain over the next 12-months might seem optimistic, let’s remember that bitcoin did it in the month of May! But gold is real; tangible wealth that you can hold in your hand. Bitcoin on the other hand is a blip on your computer screen.
They say the supply limit is 21 million bitcoins, but someone out there has access to the code and the protocol could conceivably be changed to increase the supply. Additionally, like any fiat currency, the money supply of bitcoins can exceed 21 million due to fractional-reserve banking.
They say that the decreasing-supply algorithm used by bitcoin was chosen because it approximates the rate at which commodities like gold are mined. An actually mined asset like gold makes a heck of a lot more sense than digitally mined “blocks.”
