Gold Market Was Looking for an Excuse for a Breather


Two bits of hot news on Friday – the employment report…and the action in the gold market.

According to the government, there were fewer people out of work in the month of November than there were in October. At least, that is the way the authorities tell it. The official jobless rate fell from its 26- year high of 10.2% down to a 26-year high of 10%. Good news, if you believe it’s the beginning of a trend.

The other big news is that gold fell $48. We’ll come back to that in a moment…

Elsewhere in the news, we find that bankers are lightening up – at least in their loans to speculators. Tony Jackson in The Financial Times says they’re at it again:

“US bankers are resuming their carefree habits as in the days of the credit boom. In lending to private equity, it seems they are once more issuing so called covenant-lite and payment-in-kind loans, whereby borrowers are freed from irksome conditions and can pay their annual interest by simply borrowing more.

“All this at a time when companies acquired by private equity last time round are sliding into default in record numbers.”

Oh to be young again…sans souci, sans scruple…without a worry or a regret…oh to be a banker!

We’re happy for them. Really. The bankers, that is… Well, we would be happier if they were really doing something to put the economy on the road to recovery. But what do you expect? So far, the ‘recovery’ is as phony as the boom that preceded it. A real recovery requires real savings, real investment, real jobs, and real increases in earnings. (Readers will recognize those as the same requirements for a durable boom in the stock market.) As far as we can tell, they do not exist.

But who cares? For most investors a phony recovery is as good as a real one. And if the economy is recovering in any shape or form, maybe investors don’t need so much of that catastrophe insurance – gold – after all. The price of gold fell $48 on Friday.

Most likely, the gold market was looking for an excuse for a breather. It’s been up in 20 of the last 22 trading sessions. As we kept saying, it was ready for a rest.

But is this the correction we’ve been waiting for? Maybe. Maybe not. We won’t know for a few days. If it is, we could see the price of gold slip below $1,000 again. We doubt that will happen…not with the stock market moving up.

As long as stock prices keep rising, and bankers keep pumping up speculative investments, we’re still in “phony recovery” mode. And phony recovery includes a fear of inflation…which pushes up the price of gold.

Wait ’til we get in Real Depression mode! Then, you’ll see stocks collapse…along with gold. That will be the correction in the gold market we’re waiting for.

Hey wait…we own gold. Why are we waiting for a correction in the gold market?

So we can buy more! Our “Trade of the Decade” is still the best trade around. Sell stocks on rallies. Buy gold on dips.

We keep waiting for gold to dip; it doesn’t seem to want to. Bad news…good news…it just keeps going up.

But remember, there’s still a fight going on. It’s between the natural, de-leveraging cycle, following 50 years of credit expansion…and the unnatural forces of inflation that caused the big bubbles of the ’90s and ’00s. The biggest of those bubbles blew up in ’07-’09. But what did the feds do? They went back to blowing their little black hearts out. God bless ’em!

They’ve been at it for so long that investors think they know what to expect. Here at The Daily Reckoning, we warn that a bubble is forming…and investors take it like news of an over-turned beer truck. They can’t wait to get on the scene and score a few brews. It is as if they had learned nothing from the bust-up and credit crisis! It is as if they were morons…or worse…bankers!

Or maybe we’re the idiots. So far, these latest bubbles are paying off pretty well…with US stocks up more than 60% and emerging markets more than double what they were at the bottom last march. Heck, at this rate…investors will be even in a few more months!

How will the fight turn out? What will happen next? Inflation…or deflation? Exactly which foot will the feds manage to shoot? We don’t know. There are so many wrong answers and only one right one.

We’d feel a lot better about the whole situation if the stock market would collapse in the ‘second leg down’ that we’ve been predicting. Then, we could buy more gold and await Armageddon. More important, we’d feel that we actually knew what we were talking about.

Until that happens, we’ll just have to guess along with everyone else. And our best guess this morning is that the rambling, shambling, Japan- style slump will continue…with Fed-inspired speculation in the asset markets…leading to various booms and busts… on-again, off-again recession…run-ups and run-downs in the stock market…hopes of recovery…followed by disappointments.

Meanwhile, the private sector struggles to pay down the debt from the go-go years…and the feds pile on more.

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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2 Comments on "Gold Market Was Looking for an Excuse for a Breather"

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6 years 10 months ago

Depending on the ratio you look at, you could make a case that the current dollar price of gold is either relatively fair or completely overvalued. In this post I make a case that the ratios in favor of the “fair price” view are the most sensible ones:

nigel isherwood
nigel isherwood
6 years 10 months ago
Hi bill, my opinion on gold is that there seems to be a lot of speculative money participating at the moment – for obvious reasons – but that money is fickle I imagine. Investors will get a shock if they realise that they might have to wait several years for inflation….I dont know how long we will be waiting, but I know current investors expect it soon…I think they will get a shock. The dollar carry trade is an additional speculation, that could easily reverse. For several months I have been pursuing a “deflation shock” strategy which I have been… Read more »
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