Friday, August 6, 2010

Gold Soars for 8th Straight Day, Payrolls Down, Recession Worries Up

News outlets reporting on the "disappointing" and "unexpected" results of the U.S. payroll data, somehow find themselves using those words every time the economic data confirms the frailty of the U.S. economy, which when you remove the government props, at best show they've only slowed down the economic crisis, and at worst, and most probable, exasperated it.

Now we're almost surely going to enter into a period of more quantitative easing, which is just another way of saying the Federal Reserve is going to resume it endless printing of money.

Peter Schiff concurs, saying in a report, “It is now widely accepted that the continued domestic weakness will cause the Fed to significantly expand stimulus efforts through so-called quantitative easing. It’s a strong signal for traders to flee the dollar.”

Now that the historical inverse relationship between gold and the U.S. dollar seems to have returned, after a period of time it moved off that to a euro/gold inverse relationship, we should see gold start to rise again as the reality of the weak American economy again sinks into the minds of investors.

Gold is already responding, as it has ended in positive territory for the eight trading day in a row, moving up to $1,205.30 for December delivery on the Comex division of the New York Mercantile Exchange. That was for the most actively traded contract.

It's incredible to hear the mainstream media outlets focus on the release of census workers, which they attempt to paint as a temporary situation. Unfortunately they, in general, weren't near as aggressive in saying that when the census workers were hired and propped up the jobs market as if was on a solid foundation months ago.

There is nothing really new in these numbers, other than confirming what any discerning person already knew, and that is the private sector hasn't been hiring, and the hiring by the government for needless jobs (even without the census workers included), have created the illusion of at least a level situation. That fallacy has been destroyed with the removal of the government props and we see the American economy naked as it actually is.

I don't believe there has ever been an economic recovery in the United States, only the selling out of the future of our children and grandchildren as the Obama administration and the Federal Reserve attempt to print and spend money in order to buy time until a real recovery begins.

Unfortunately, their Keynesian strategy is backfiring, and future generations will have to pay for the outrageous stimulus programs which have done absolutely nothing to help the economy, but rather are only extending the recession longer.

Not only that, but now an increased tax burden has been added to the problem for the American people, and that should cause an even deeper rebellion and resentment from those Americans, who are increasingly discovering what these actions are doing to their country.

As far as how this affects the relationship between gold and the euro, that has started to revert to the former relationship of moving in tandem with one another, although there is little reason for that to happen, as nothing has really happened to change the sovereign debt crisis in Europe, other than the media's decision to report the crisis is relatively over.

The market is acting like there has been a real change, so while they believe it, the euro/gold relationship looks like it'll act like it has in the past.

If and when that changes, all bets are off as to how high gold prices will go, as there is really nothing in the way any longer to keep it down.

Those with discernment understand the enormous economic challenges ahead, and will invest or hold their money accordingly. Gold will remain one of the best places for safety and returns for some time to come.

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