Despite the better than expected non-farm payroll reported, many are skeptical of the 255,000 “created” jobs the Bureau of Labor Statistics (BLS) reported last Friday. In a CNBC interview, Dennis Gartman, Founder, Editor and Publisher of The Gartman Letter, expressed some doubt on how well these reports gauge the health of a growing US economy.
We have to remember however that there were two things that I think need to be discussed. One is that a great good deal of this increase was because of the birth/death adjustment as they call it, which added about 85,000 payroll jobs to the number.”
Lately, there’s so much gold stockpiled by governments and investors, someone should pitch a new reality TV show called Gold Hoarders. But rather than poor agoraphobics maddeningly piling up old newspapers and canned food, the show would feature smart individuals like Bill Gross who have the foresight to see the writing on the wall. The message is simple, “Look out for a collapsed dollar and low-yielding assets.”
Bill Gross is all straight talk when it comes to his preference for precious metals investment. “I don’t like bonds; I don’t like most stocks; I don’t like private equity,” the Janus Capital portfolio manager told investors this week.
What’s his reasoning? It’s pretty straightforward. Central banking policy has eliminated a healthy, open market atmosphere where high-yield opportunities are no longer readily available.
Your weekly dose of the Fed’s latest antics.
Bank of England Slashes Rates, Gold Surges Forward
It’s important to remember that it’s not just the US Federal Reserve that launches the price of gold upwards with every misguided decision. As we predicted on Wednesday, the Bank of England dropped their interest rate to record lows in order to combat their struggling post-Brexit economy. The main result for the precious yellow metal was nearly a half-point surge in value overnight, bringing it closer to the $1,400 mark.
At Freedom Fest last month, Peter Schiff appeared on AMTV discussing how the Fed’s monetary policy has created an impending economic crisis to rival the 2008 housing crisis.
“The problems were created by the Fed,” he states. “They were created by monetary policy being too loose. Rates were too low when they were at 1%. That’s what inflated the housing bubble. But by keeping them at zero for seven years, the damage the Fed has done to the economy this time is much greater than what was done prior. So, I think we’re headed for a much worse economic crisis than what we went through in 2008”
On Thursday, the Bank of England will meet to decide on an interest rate cut. It’s widely expected by economic officials that the UK’s central bank will cut rates 25 basis points, from .50% to .25%. What will this mean for a country already reeling from the economic crunch post Brexit?
A rate decrease will prove to mark a historic low. According to International Business Times:
The BoE has kept interest rates at a historic low for the last seven years and the expected cut would bring the benchmark into uncharted territory. When Britain’s central bank cut the benchmark to 0.5% in 2009, the lowest since the BoE was founded in 1694, it described the figure as an ‘emergency rate’ and for the past seven years savers, institutions, fund managers, and economists have believed a rate rise was just around the corner.”
Few anticipate a rate lowering to zero or even negative levels; however, it’s still not out of the question. Other central banks, including Danmarks Nationalbank, the European Central Bank, Sveriges Riksbank, the Swiss National Bank, and Bank of Japan, have all cut rates to or below zero over the last few years.
Toronto-Dominion Bank’s chief investment officer, Bruce Cooper, is changing the firm’s outlook to conserve capital by moving funds heavily into gold. According to Bloomberg, TD Bank oversees more than $230 billion in assets, and has “shifted to a ‘maximum overweight’ in gold for its portfolios.” Cooper oversees TD Asset Management, the investment arm of Canada’s second-largest lender.
So, what’s caused Cooper’s course change? The usual suspects: a sluggish global economy, the Brexit vote, central banking policies, and the upcoming US presidential election. All have contributed to TD’s overall feeling of uncertainty.
Within TD’s portfolio, gold promotes “diversification, stability and protecting against deflation more than returns,” Cooper said. “Job one today is about capital preservation. It’s not about shooting the lights out.”
For Cooper, gold investment is about playing it smart, not about being a doom and gloomer. “We’re cautious but not negative. This is not about canned goods and getting in the bunker,” he said.
In case you missed it, here’s what the Fed’s been up to this week.
Gold Prices Spike after Fed Announcement
It was a big week for being fed up with central banking. The Fed’s July meeting and the FOMC’s statement were on Wednesday. As expected, the plans for a rate increase were put on hold, and the markets had little response with the S&P closing flat. However, investors poured into gold futures, which rallied to their highest level in two weeks on Wednesday, according to MarketWatch.
Last week, we reported on an oft-ignored fundamental in the gold market – the shrinking supply.
Mining.com analyzed the data and concluded there are no more easy gold discoveries. In fact, the number of major gold discoveries is shrinking. This week we have further evidence that the supply of gold is being squeezed. In fact, MarketWatch asserted that we’re heading for “an impending gold production cliff” based on analysis by Sprott Asset Management.
Analysts say gold discoveries peaked in 2007, and a production peak will soon follow. Since that high-point in ’07, discoveries have collapsed, this “despite exploration budgets increasing by 250% from 2009 to 2012,” Sprott’s gold team said in a recent note.
Mining companies have begun to consider upping exploration budges with the price of gold on the rise, but there’s a “lead time to transition a discovery to production,” Sprott analysts said. As a result, “production is forecasted to decline over the next number of years.”
Once again, the Federal Reserve came, saw, and did nothing.
This has become modus operandi for the Fed over the last two years. As each FOMC meeting approaches, speculation about a possible rate hike ramps up and then the Janet Yellen does…nothing. The one exception was last December, and that turned out to be a complete disaster.
The pundits and analysts are already talking about the possibility of a September hike. Odds are, we’ll witness a repeat performance – or should I say non-performance.
Interestingly, the mainstream is starting to catch on to the game.
The Federal Reserve stayed pat on interest rates in its most recent meeting, but speculation continues to percolate that the central bank will possibly raise rates in September.
Peter Schiff has been saying for months that the Fed won’t raise rates. He reiterated this on his most recent podcast. (Scroll down to listen to the full podcast.)
The Fed continued to say that they believe the economy is evolving in a way that will warrant gradual rate hikes. And of course, by gradual they mean no more rate hikes…So they raised rates once in December and they haven’t raised rates since. That’s about as gradual as you can possibly get. I mean, if a snail was raising rates they would have blown past Janet Yellen…I think, again, the rate-hiking cycle ended when they raised rates. It began when they started talking about tapering. That was the whole rate cycle, and whether people want to admit it or not, we are now in the easing cycle.”
In fact, Peter has said on numerous occasions the next move for the Fed will be lowering rates back to zero and launching another round of quantitative easing.
If the actions of central banks in the rest of the world serve as any example, Peter will certainly be proven right because the world is awash in QE. In fact, Reuters reported that the amount of quantitative easing is at record levels:
