Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Markets Are Moving on a Fantasy

  by    0   1

We’ve seen a sharp selloff in both gold and silver. Gold was down over $40 an ounce Friday. Meanwhile, the US dollar saw a sharp increase, along with a rise in long-term Treasury yields. The catalyst for these sharp moves was a better-than-expected jobs report and expectation that it will spark a quick pivot to monetary tightening by the Fed.

The markets are moving on fantasy, not economic reality.

Yes, the employment report was better than expected, but not nearly strong enough to justify the gold and silver selloff and the dollar rally.

If you actually look at the employment number but also look at all the other economic data that came out, not only on the day, but on the week, all of this data continues to support a weak US dollar and a stronger gold price. But the markets are not trading on fundamentals. Fundamentals have nothing to do with this market. This market is based on hype, based on momentum, and it’s based on algorithms.

These algorithms are a great example of “garbage in, garbage out.” Whenever they get a good economic number, they trigger gold sales and dollar buys. Or whenever somebody at the Fed talks about the mere possibility of tightening, the computers trigger the same moves. But there is no real rational understanding of what the numbers actually mean and the bigger picture. In the long run, the fundamentals are the only thing that matter. And that’s why in the long run, we’re going to see a big drop in the dollar and a surge in the price of gold.

Looking at the employment numbers, there’s a good explanation for the surge in jobs that has nothing to do with the underlying economy. Many red states cut the extra $300 a week from their unemployment benefits. Nearly 1 million people went back to work in July. All this does is provide more evidence to what obviously was common sense, that paying people not to work results in people not working. And when you stop paying people not to work, they go back to work.

But that doesn’t mean we have real strength in the US economy.

Meanwhile, average hourly earnings were up 4% year-on-year in July. That signals more pressure on inflation.

This data means we are ostensibly closer to the conditions that the Fed says need to be met in order to raise interest rates and shrink the quantitative easing program.

It’s this anticipation of the tightening process happening sooner rather than later that is the real reason that you saw the big bid in the dollar and the sell-off in gold — despite the fact that none of this really matters because the Fed is just bluffing about what conditions would be necessary for it to tighten monetary policy because the conditions don’t exist that would actually cause the Fed to do that.

The bottom line is this employment report does not signal some booming economy that will allow the Federal Reserve to remove all of the monetary supports holding up the economy. In fact, absent those monetary supports, the numbers would not be this good. They would be a lot worse if we didn’t have all the help from the Fed. And the Fed knows if they remove that help then everything is going to implode that’s been built on the foundation of artificially low interest rates and quantitative easing.

There was a big jump in consumer credit in June. This was supported by the Fed’s ultra-low interest rates. And if consumers couldn’t borrow all this money, they wouldn’t have been able to spend it.

Obviously, if consumers were not able to borrow all this money, then they couldn’t have spent it. They couldn’t have bought all this stuff but for their ability to borrow money. And the only reason they can borrow money is because the Fed is supplying it. The Fed is making all this money available. It’s holding interest rates artificially low so that people can pay the interest on all this money that they’re borrowing. And that is what is helping to create a lot of these service sector jobs that would not exist but for the ability of Americans to go deeper into debt.

Ultimately, the inflation train has left the station and if the Fed tries to turn off the monetary spigots, the economy will end up getting derailed. The bubble economy depends on air supplied by the Fed. If the Fed stops supplying that air, the whole thing is going to deflate.

Gold IRA Rollover to 401k

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Gold Hits New All-Time Record High

Gold hit a new all-time nominal high, surpassing the previous record set in December of the previous year. The precious metal’s price reached approximately $2,140, indicating a robust and continuing interest in gold as a safe-haven asset, despite a rather peculiar lack of fanfare from the media and retail investors. This latest peak in gold […]

READ MORE →

Is a Weak Yen Feeding the Global Gold Bull?

The gold price has been surging, with unprecedented central bank demand gobbling up supply. It has been a force to behold — especially as US monetary policy has been relatively tight since 2022, and 10-year Treasury yields have rocketed up, which generally puts firm downward pressure on gold against USD. 

READ MORE →

World Gold Council: “Blistering Central Bank Buying” Fuels Strong Gold Demand

Total gold demand hit an all-time high in 2023, according to a recent report released by the World Gold Council. Last week, the World Gold Council (WGC) released its Gold Demand Trends report, which tracks developments in the demand for and use of gold around the world. Excluding over-the-counter (OTC) trade, 2023 gold demand fell slightly from 2022 […]

READ MORE →

VIX – The Calm Before the Storm

The VIX, often referred to as ‘Wall Street’s fear gauge,‘ is currently portraying a sense of calm among investors, registering well below the 20 level. 

READ MORE →

Four States Consider Lifting Taxes on Precious Metals

Citizens of Georgia, Kentucky, Wisconsin, and Kansas may soon enjoy lower taxes on precious metals if recently introduced pro-metal bills are made law in 2024.

READ MORE →

Comments are closed.

Call Now