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July 15, 2019

When Good Job Numbers Means Bad, Weakening Economy Means Good


The DOW Jones hit its all-time high on July 11th and is still trending strongly near the 27,000-point mark, indicating that the economy is booming and all is right in the world. Nothing is wrong, nor does anything look like it could go wrong in the short- or medium- term.

This spike in price comes on the heels of amazing jobs numbers, which blew away market expectations of 160,000 positions to be added throughout the month of June. However, this was vastly outperformed, as the economy added 224,000 positions instead.

But wait! You say that the markets actually threw a tantrum and were upset over these numbers last Friday, sending the markets lower on Monday? Surely, this defies all common sense!

Of course it doesn't make sense, as sanity was long ago abandoned in this new age of Quantitative Easing to infinity and perpetually low interest rates. Who needs basic economics anymore? That's a barbarous relic of the past!

You see, strengthening job numbers means that the FED may pull back the punch bowl and not lower interest rates, putting a damper on the raging low-rates, easy-money party. What was once good is now bad, and what was once bad is now good. This is the economic madness we currently live in.
Fortunately for Wall Street, they had little to fear and were simply overreacting, as we would quickly discover.

The rally resumed as the printer-in-chief, Federal Reserve Chairman Jerome Powell, testified before the House Committee on Financial Services regarding the monetary policy and the state of the United States economy, making some incredibly dovish comments in his opening remarks.

A strong indication was given that he would be quite comfortable with cutting rates at this month’s FED meeting, which is scheduled to take place on the 30th-31st.

This was all the green light the markets needed to resume the party and end their temper tantrums, as odds for the chances of FED rate cut at the end of this month once again shot back to their previous 100% odd level, as according to the CME Group FedWatch tool.

This also caused gold bullion to resume its trend higher, once again moving above the critical $1400 price level, with a number of closes above this price point.


Once again, gold bullion appears to be the only rational, sane asset in the house, performing as it should by adjusting for an increased chance of interest rate cuts and dipping lower when the positive jobs report was released.

Meanwhile, smart Central Banks around the globe are not playing into this nonsense and are continuing to purchase precious metals, with one of the key players being China, who once again added to their gold reserves throughout the month of June, adding 10.3 tons.

Poland has also continued their accumulation in the face of this insanity, stating that they have more than doubled their gold reserves over this year and last, making them the largest holder of the yellow metal in central Europe and a possible financial powerhouse within the region in the future.
In conclusion, the future for gold and thus precious metals in general remains bright. As predicted, I believe it will continue to rally throughout the remainder of this year and next.

This asset class will be an anchor in the coming storm, as sanity and reality are forcibly injected back into the markets, as they always have been and as they always eventually will be.

Until then, keep stacking.

Courtesy of Nathan McDonald via Sprott Money  
 
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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