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Chinese Gold the real story
One Friday we posted the key points of the WGC's 2014 gold report. In that report they state total Chinese consumer demand was 814t, far less than the 2100t (Shanghai Gold Exchange (SGE) based) numbers we report. So what gives? Well firstly WGC state as follows:
"The flow of gold into China has far exceeded the amount needed to meet domestic jewellery and investment demand in recent years. The role of the commercial banks in using this gold for financing purposes has been well documented, including in our report, Understanding China's gold market, and this activity expanded in 2014. To some extent, this helps explain why Shanghai Gold Exchange delivery figures are significantly higher than consumer demand."
So despite the gold clearly going into China, because it is going to banks they classify it as 'stocks' instead of demand/consumed?
The SGE numbers do need to be adjusted for the small amount that is exported by foreign banks. For example, after another huge week of demand to the week ending 6 Feb, the headline figure of 315t ytd is 289t after that adjustment. The most accurate number for 2014 is at least 1834t, comprising the conservative estimate of 1200t imports (1100t actual in Nov and estimate of 1200-1300t by the SGE chairman for 2014 end), 452t domestic mine supply, and 182t scrap/recycling.
These are very, very big numbers and 2015 is off to an incredible start if you consider the first 5 weeks have seen 39% of the total 2014 WGC number already. It takes on new meaning too when you consider what the LBMA had to say at a conference in June last year:
"I was at the Shanghai Derivatives Forum at the end of May and one of the speakers was a representative of the [China] Gold Association. He gave us quite an interesting insight into the flavour of what is going on in China from a strategic perspective. Some of the things he talked about included that China planned to change the landscape of world gold markets. He talked about having a strong currency and about having that currency backed by gold, like the US dollar [was, its not now?]. He also talked about people holding more gold and encouraging more people to hold gold. That is not just individuals, but also the central bank. From that perspective, it is also getting gold into the country in terms of encouraging domestic gold production, but also investing in international mining companies and sourcing the product from them. China has got a very friendly gold strategy."
The Chinese can see the world's reserve Fiat currency as the Ponzi scheme it is, abused by its issuer. Whilst few could verify the statement above as fact most would have to admit it 'feels' right
 
AinslieBullion said:
The Chinese can see the world's reserve Fiat currency as the Ponzi scheme it is, abused by its issuer. Whilst few could verify the statement above as fact most would have to admit it 'feels' right
Click to expand...
^^^
True, but while the Chinese may not have fired the first shot, by suppressing their currency so that the average chinese income amounts to as little as $13/day, they really were the ones to draw first blood which escalated what was previously just a trade imbalance into what is now a full blown currency war.

They undervalued their own people's labour so much that pretty much no other country could compete.... that's what has drawn the crabs. The chinese gave the rest of world no choice but to devalue their own currencies too, which started this 'zero sum' race-to-the-bottom that will see the end of the current fiat era.
 
So you think inflation is dead?
Macro financial news is dominated by the word deflation at the moment and that is certainly appropriate for normal consumer goods. But as we discussed here there has been a binge of debt since the GFC and much of that $57t new debt has found its way to financial markets in a desperate bid to find yield in a zero interest world. Last night we posted an excellent, balanced article on how we are now seeing inflation in financial markets accordingly and how completely unsustainable this is. Anyone invested in or thinking of investing in gold or silver should read and understand this article. The upshot is the overinflated financial markets are now worth around $294t. The precarious nature of them means there will be a collapse of some sort and an ensuing flight to non financial safe havens ala the kings of these, gold and silver. The article talks about what would happen to the gold price if just some of the $294t tried to squeeze into the TOTAL $7.1t gold market. But as they allude in the article, it is not a $7.1t market, but a mere fraction of that as central banks and 'strong hands' who will not sell the gold, especially in such circumstances are not 'in the market'. We posted this piece last July where 'market' gold accounts for just 0.5% of all financial assets and indeed Ted Butler's view is it is even less. Just pause now and try to envisage the price action of $294t of panicked financial assets trying to fit into a gold market that size. For those following the COMEX fiasco at the moment, consider then what would happen when all those futures contracts out there, contracts far far in excess of physical gold and silver held, asked for delivery So whilst the world is (rightly) concerned about deflation on broad measures; there exists a very scary nonchalance (refer low VIX at moment) about the over inflated financial markets. History tells us such "everything is awesome" complacency precedes a crash. The bubble is tight awaiting a prick. Greece anyone?
PS speaking of inflation I received a reminder yesterday when my cousin brought this note back from Zimbabwe. How quickly we forget the repercussions of excessive money printing

zimbabwe.jpg
 
Protecting your wealth short term earnings v capital losses

We spoke yesterday of the risk of inflated financial markets and where that leaves gold (a must read in our view if you missed it). In the last couple of days we've also seen yet another EU deadline ignored by Greece and the whole Grexit / debt default issue still at large as just one of a number of 'pricks' circling the engorged financial markets bubble at present.
Vern Gowdie also strongly believes a major financial markets meltdown is nigh and lists his 6 main reasons below. Vern rightly points out too that those worried about loss of earnings by not being invested in yielding assets right now, would very quickly forget the forgone earnings when faced with capital losses should the market take a 60%+ fall We include his 6 reasons unedited as follows:
"
You cannot solve a debt crisis with more debt. The world is US$57 trillion more indebted than it was in 2008. If the world teetered with accumulated debts of US$142 trillion in 2008, how is it going to fare now that it has US$199 trillion (and growing) of debt? This is the biggest debt pile (as a percentage of GDP) the world has ever seen. Every single debt crisis in history has the same unhappy and messy ending. What makes anyone think this one will have some kind of 'rom com' happily ever after type ending?
Reversion to the mean. Every single long term US share market valuation metric has the needle pointing to either over-valued or extremely over-valued. Unless we've entered a 'new normal' in valuation metrics, reversion to the mean is still a valid mathematical assumption.
Baby boomers the drivers of credit based consumption for the past 30-years are transitioning en-masse into retirement. A lower return investment environment means the cavalier credit card fuelled purchases of yesteryear are being replaced with a more cautious cash based consumer attitude at least until Generation X comes through in sufficient numbers to pick up the slack.
Central banks openly buying government bonds (to finance government budget deficits) has a look, feel and smell of 'something is not quite right' about it. If this is a sound economic principle, why wasn't it being done before the GFC? In my simple world, this constitutes a case of 'desperate times calling for even more desperate measures'. Hardly a sound basis for investing in risk assets.
Ultra low and even negative interest rates are a reflection of a very sick economy...one that is on life support courtesy of global QE efforts and history making interest rate settings. The sick (and getting sicker) economy is at odds with a booming share market. If something can't continue, then it won't. Either the economy regains health or the share market joins it in the intensive care ward.
China quadrupled its debt from US$7 trillion to US$28 trillion between 2008 and 2014. This explains our GFC saviour, the 'mining boom'. Debt accumulation of this magnitude and pace is impossible to maintain unless of course it is different this time. Even if China just takes 'a breather' and debt levels stagnate for a couple of years, the loss of momentum is enough to bring the perpetual debt machine (global economy) to a halt. On the other hand, what happens if a major Chinese bank declares itself insolvent due to poorly collateralised lending? Watch out below! "
Vern's observations above and on missed earnings compared to large capital losses are bang on. However whilst Vern is saying get 100% out of the financial market right now, the reality is the central banks could keep this game going for a little longer with good earnings and capital gains to be made if you have the risk appetite. We preach balance rather than one way bets. There is little denying the truth in the 6 reasons above. You can be prepared for that crash by having a good chunk of your wealth in gold and silver and have stop losses set on your shares to at least minimise your capital losses. Just recall the message yesterday though, when (not if) it happens the flight to gold and silver will be enormous and the prices will rise accordingly. Leaving your purchase until then will be too late.
 
AinslieBullion said:
....at least until Generation X comes through in sufficient numbers to pick up the slack.
Click to expand...

I don't think this will happen. Studying the demographic charts of the countries of the developed world and one can see the baby-boomer bulge nearing the top. The pig has moved through the python! There just won't be enough gen-x'ers to buy all the assets the baby boomers have acuired to fund their retirement at their current valuations.

In the same way as your previous post mentioned an investors chasing an increasingly shrinking supply of physical gold, the coming baby boomer liquidation phase (their assets, not the baby-boomers :) ) will see the assets of more and more retirees chasing a dwindling supply of cash/credit of the younger generation.

In a market flooded with stocks & investment properties for sale, the only way to guarantee a sale will be falling prices... and the evaporation of retirees paper wealth.
 
Patience

The Oxford dictionary defines 'patience' thus:

"The capacity to accept or tolerate delay, problems, or suffering without becoming annoyed or anxious"

Last night gold jumped $15 on the news that the US Fed sent a clear message that it will still be a long time before they can consider raising US interest rates. You will recall they dropped their new 'considerable time' term for 'patience' with respect to raising US interest rates a few meetings ago. Last night they cited the strong USD, rising tensions over Greece and Ukraine and slow US wage growth for keeping the patient on free money drugs for longer. For all the rhetoric of a strong US economy, the actions of the Fed are in stark contrast. This is a market hooked on stimulus and they know it. It is also a market with a pile of US debt and raising rates will be debilitating for many.

Chris Joye at the Australian Financial Review puts it well:

"Central bankers are taxing future generations to superficially stimulate the present. It's classic human hedonism or, more technically, hyperbolic discounting. The economy is like a human body. If you fall sick, there's a case for temporary medicine to mitigate the malaise and facilitate recovery. The policy analogy is lower interest rates and budget deficits. But if you dope up the patient on extreme quantities of drugs for long periods, you actually start damaging the body's capacity to heal itself. Rather than relying on its innate ability to repair, the body becomes addicted to external bailouts. And the medicine morphs into the problem.

Imposing excessively stimulatory interest rates for unnecessarily long periods (it is eight years since the GFC first hit) undermines the regenerative qualities of the economy that are the cornerstone of long-term productivity growth. Ridiculously cheap money inflates the value of leveraged assets to unsustainable levels, sucking scarce people and capital away from other businesses. Debt-laden firms are rewarded while the prudent are punished."

As Chris alludes, when you mess with natural markets you are just setting yourself up for a far deeper fall when you lose control. To many we are in the midst right now of that loss of control. When considering the true definition of 'patience' above, we'd suggest that maybe the US Fed is just a tad anxious right now regardless of their words.
 
A Greecy Pole.

We discussed in today's radio a bit about the Euro / Greece negotiations. To be honest, when you consider this, we are a little perplexed as to why financial markets aren't more on tender hooks. The fact is that either way it goes is potentially quite bad. If Greece walks away they will leave damaged creditors (direct and indirect) and potentially start a 'trend' with the other PIIGS likely to follow (Spain's equivalent to Greece's Syriza party now looking certain to get in in this year's election). Stay and the Euro Group need to extend over EUR240b with no prospect of repayment. Maybe people just think Euro QE will mop it all up you know with more debt..

More directly for Aussies, few realise just how much our big banks borrow from the Eurozone cheaply and resell to us (as investment/mortgage loans) at the higher Aussie rates. Look into their profits and you'll see this works very well for them. The problem is we are borrowing more and more. The ABS just released the December figures showing 'Investor Finance' (investment properties etc) ended the year nearly 20% up on last year and now accounts for nearly half of total finance commitments (an all time record). That total financial commitments is itself up 75% in just 4 years as well.

So right now we have this cocktail of more and more people leveraging themselves into investment properties on record low interest rates and negative gearing whilst the very real threat of a 2012-like Euro collapse could see an unexpected jump in the cost of that cheap money from Europe. Last we checked the big banks were not classified as charities
 
Too early to crack the ouzo
Whilst main stream media reported the Greek / Euro debt deal as 'done', it is far from that. The 'done' deal is only for 4 months and first needs the Troika (EC, ECB and IMF) to sign off on Greece's proposed reforms to be supplied by the end of today (Euro time). In fact the Greek Finance Minister had this to say a little later:
"We're in trouble next week if creditors don't accept Greece's reforms. If our list of reforms is not backed by the institutions, this agreement is dead and buried."
They are indeed in trouble as they will be unable to meet their obligations without the extension and default (they also have the IMF loan to repay within that period) but also have mass anti austerity demonstrations still going on in the country that elected them on a 'no austerity' platform. As the German Finance Minister commented after the deal, the "Greeks certainly will have a difficult time to explain the deal to their voters"
However the agreement says the Euro "will, for the 2015 primary surplus target, take the economic circumstances of 2015 into account." in other words they will allow a softer austerity approach than the original bailout conditions required given what a mess Greece is.
So the saga continues, and even if agreement is struck, it only kicks the can for 4 more months. We share the view of many that this still poses a very serious threat to our interlinked financial worlds. Phoenix Capital Research has this to say:
"..the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as thesenior most assetpledged as collateral for hundreds of trillions of Dollars worth of trades.
Indeed, the global derivatives market is roughly $700trillionin size.That's over TEN TIMES the world's GDP. And sovereign bonds including even bonds from bankrupt countries such as Greece are one of, if nottheprimary collateral underlying all of these trades.
Lost amidst the hub-bub about austerity measures and Debt to GDP ratios for Greece is the real issue that concerns the EU banks and the EU regulators:what happens to the trades that EU banks have made using Greek sovereign bonds as collateral?"
 
Top 7 Gold Miners "Peaked"?

Further to our last article - https://www.ainsliebullion.com.au/g...came-from-in-2014/tabid/88/a/844/default.aspx on where gold comes from it is worth looking at where this sits in the context of their latest forecasts and current reserves. The two tables below (courtesy of analyst Andy Hoffman) are fairly self explanatory, are sourced from each company's latest reports, and paint a very clear picture of an industry in decline.
First let's look at how they fared last year and their forecast production for 2015

2015-forecast.jpg


Beyond 2015, of the 2 largest producers, Barrick gave forward guidance that 2016 and 2017 production may be well lower than 2015 and Newmont that 2016 and 2017 will be essentially the same. GoldCorps 2015 number is particularly interesting fresh after this comment (incl links to our previous articles on Peak Gold) from its CEO...
In terms of reserves, the following table paints a pretty ordinary picture also:

2015-forecast-2.jpg


We've spoken at length before about "Peak Gold" where exploration is way down, new discoveries very few, and discovery to production times blowing out beyond 10 years (see link above for detail). The tables above paint a clear picture of supply having peaked. Throw in the strong demand, especially from the East and central banks, and you have a very compelling supply / demand investment equation.
 
World Tour Debt and Stimulus
If you haven't got it already, we think the world has a fatal debt problem. Why? Well, per the table below (courtesy of ZeroHedge), no less than 9 countries now have debt to GDP ratios over 300% (i.e their debt is 3 times their total annual output/ productivity) and 39% of countries are over the 'danger line' 100%. The table also shows how this has grown since just before the GFC. Note all the red (increases) in the Government column. This is the combination of debt from money printing and continual deficit spending to stimulate sick economies (and improve GDP's which ironically can be bolstered by more debt, hiding real growth). If it isn't printing money it is reducing rates (as we are now seeing in Australia) in an effort to stimulate growth and the only thing that will work away at this debt inflation. But as we reported recently, it is mainly financial markets that are seeing that inflation enriching the top 1% but not the broader population. The second picture below shows the interest rate stimulus attempts going on around the world, indeed 50% of the world is dropping rates some into negative territory. The US has nowhere to go as it is near zero now, but just last night the Fed Chair reiterated they are not near raising theirs either. This from supposedly the economic saviour of the world As we discussed recently this represents a possible opportunity for gold investors.

world%20debt%20gdp.jpg


world%20rate%20cuts.jpg
 
Something's gunna pop!
...but I've waiting for a pop to happen since 2005.

AinslieBullion said:
... If it isn't printing money it is reducing rates (as we are now seeing in Australia) in an effort to stimulate growth and the only thing that will work away at this debt inflation.
Click to expand...

If the RBA isn't printing currency/flooding the FX markets, I wonder through what mechanism it uses to manipulate the $AUD's value?

eg; Remember last year when the business community was complaining to the govt about how the strong 'aussie' was hurting exports and then 'whump!' the $AUD took a nose dive, without a word from the RBA or interest rate changes?

QED they're printing money!
 
Manipulation Investigation Launched
We deliberately steer clear of delving deep into the price manipulation theories around precious metals. They range from full (though clearly secret) Government sponsored shorting of the market to make the dollar and financial assets look like nothing is wrong, to simply big banks doing what big banks do and (legally within current rules) making money playing markets smaller than them. Whatever the theory, whether you are a "gold bug" or diversified investor the actions in the market make for a very compelling case of manipulation. A little over a year ago the US CFTC (Commodity Futures Trading Commission) concluded an investigation into this on silver and returned an 'its fine' verdict, surprising all but the most sceptical (who expected as much from a government agency). Well yesterday news broke that the US Department of Justice is launching an investigation into no less than 10 major banks on rigging precious metals markets, as has occurred recently on the likes of Libor. Full sceptics may say ho-hum but it seems to be getting the attention of others, including insiders, as a possible real shake up, just as it was with Libor. You may recall Deutschebank withdrew from the gold fix as Germany's financial watchdog (BaFin) is undergoing the same investigation and now so is the Swiss equivalent (WEKO). The Chinese grew tired of this some time ago and are hence starting their own price discovery centre with an expanded international Shanghai Gold Exchange. Silver analyst Ted Butler has this to say after the weekly official Commitment of Traders report was issued on Friday. For your reference the 8 he refers to are represented in the 10 under investigation
"Even though the headline number of the total commercial net short position[in silver in last Friday's COT Report]has declined by nearly 14,000 contracts since January 27, the concentrated net short position of the eight largest shorts has hardly budged---and remains over 65,000 contracts. This is still a manipulative position on its face since it represents more than 325 million ounces and 40% of world annual production, an amount unequalled among all commodities. Reviewing the dismal earnings reports by those companies that mine silver, I have uncovered not a one holding any of the 325 million oz held short by the 8 crooked COMEX shorts. Excepting JPMorgan, I doubt any of the other seven big shorts own much real silver, even though the concentrated short position represents more than 30% of all the silver bullion in the world. This is simply preposterous and illegal"
The fact is it has presented a wonderful buying opportunity for us 'little folk' and whether it is the result of this investigation or natural forces, markets always eventually return to fundamentals and those fundamentals for gold and silver right now are extremely compelling.

Jump into our site for more news, live pricing and gold/silver product - http://www.ainsliebullion.com.au
 
Gold & Silver - currency hedge
In today's radio news we revealed the report just released showing Australia is now the most expensive manufacturer in the world as can be seen in the chart below:

australian-manufacturing.jpg



In the ever increasingly globalised economy this means a whole lot of things but today we just want to focus on our Aussie dollar. Clearly, apart from a structural overhaul of our productivity costs, we need and you would have to bet will get, a lower Aussie dollar to compete. So how can you either profit from or at the very least protect your wealth from such a fall? Gold and silver, as we wrote about here. Check out the price of gold in 3 of the more prominently crashing currencies around the world below (PS look very closely to the far right for Ukraine..!):

gold-v-russian-rub.jpg


gold-ukr-hryv.jpg


gold-v-arg-peso.jpg



These give you a clear picture of how your wealth escalates when the currency falls against the USD.
 
Gold a "No brainer" buy
Last week we posted a news article on the evidence from the top 7 producers illustrating clearly we are likely to see "Peak Gold" this year. A table in that article showed the stark declines in reserves what these guys have in the ground to mine in the future. Without new discoveries, production sees these reserves decline until they are gone. One of the bigger players, GoldCorp included the following graph in their annual report. As we've reported earlier too, such a trend appears common amongst the top producers. Gold at these low prices means exploration is the first victim of fiscal management. The graph below illustrates this very clearly:

peak%20gold.png



Let us leave you with this quote from Hebba Investments LLC
"In conclusion, despite all the negativity over the last few years, golds star is set to burn very bright regardless of what happens in the global economy as reserves are simply not being replaced at the current gold price. Investors do not need to see any financial chaos to have a higher gold price - all investors need is to have the same lack of discoveries trend that we've seen over the last 15 years continue into the future. Thus investors should buy gold, ignore the noise, and wait until economic fundamentals take gold to much higher prices.
Of course, if somehowthe stunning growth in worldwide debtcatches up with the global economy - all bets are off and we could see a gold price many multiples of what we have today. There are very few no-brainer investments out there, but gold seems to be one of them and for patient investors this is a great time to buy."
 
Danger levels in Shares
We speak often of the zero interest rate world we live in forcing people into an over inflated stock market searching for yield, inflating it more. What people forget is that buying shares should be an investment based on an informed view of the future earnings of that company. That shares are now at record highs in such a sluggish global economy is a little counterintuitive to say the least. John Hussman of Hussman Funds believes, in essence, the outlook is so poor and current prices so high (with P/E and price / revenue ratios at historic highs), that we are unlikely to see any real capital gain in shares for 8 years.
"Unless we observe a rather swift improvement in market internals and a further, material easing in credit spreads neither which would relieve the present overvaluation of the market, but both which would defer our immediate concerns about downside risk the present moment likely represents the best opportunity to reduce exposure to stock market risk that investors are likely to encounter in the coming 8 years."
"The fact that the financial marketsfeelwonderful right now is preciselybecause yield-seeking speculation and monetary distortions have raised security pricestodayto levels where they are likely to standyears from today with steep roller-coaster rides in the interim."
The following graph shows previous instances (vertical lines) where conditions matched the current extremes (hint have a look at what happened each time afterwards). Buying your gold and silver after this happens will be too late

bad%20timing.png
 
"Their" hands on your Super
There is growing commentary of late on exactly who is going to use YOUR super in years to come. There are examples around the world where Governments have moved in on retirement funds to ease their own debt woes. Let's face it, it wouldn't be that hard for the government to establish its own "Infrastructure Fund" with some nominal return from tolls and the like and mandate the big industry funds to invest into it.
The following quote from Kris Sayce knocks it on the head. Right now you can relatively easily and inexpensively establish your own SMSF (self managed super fund) and have physical gold and silver bullion as a part of it indeed as much as you like. Click here to learn more - https://www.ainsliebullion.com.au/SMSF.aspx
As Kris suggests below they may try and make SMSF's harder to do. There is little conceivable way they could do so with something as straight forward as gold and silver bullion and rules are very rarely applied retrospectively.
"Now super is a 'national asset'. It's not surprising that politicians and lobby groups have given it that new identity.
After all, the total value of Aussie super now runs to over $2 trillion.
That's enough to pay off the federal government's debt six times over. The trouble is, right now, the money is just out of reach.
Making it even harder is the fact that more than a quarter of all super money is in self-managed super funds.
That's why the super industry is backing the government's plans for more rules for super. They want the rules to be so harsh that people will ditch SMSFs and flock back to mainstream funds.
That way the super fund industry can slice off their fees, and gain favour with the government by shifting capital where the government wants infrastructure, nation building, and so on.
Make no mistake. This is about a wealth grab. You'll end up working longer, but getting less in retirement as the government grabs your super and replaces it with a new Aged Pension."
Few investments feel as intuitively 'right' as gold and silver for retirement. They are a proven safe haven that you can sell down in small amounts as you need in your pension phase (compared to a property for instance). Unless you are very close to retirement it is certain that there will be a major financial markets correction between now and then. You need to protect your future income from being caught out by that.
 
Today's Radio - https://www.ainsliebullion.com.au/g...6th-ainslie-radio/tabid/88/a/868/default.aspx

and

The Currency War & Gold
Last week we showed you just how effective gold is at protecting your wealth with a falling currency. Whilst the RBA surprised this week by not lowering our rate again, the AUD stays at the 78ish level for longer. But most now fully expect next month will see a rate drop and so too the AUD, especially in light of yesterday's ordinary GDP print. The RBA remain trapped between not popping the property bubble and the need for a lower dollar. They are going to try lending restrictions to tackle the property bubble so a lower dollar seems inevitable. Interestingly this week Bill Gross, the infamous ex head of one of the world's largest ($2t) money managers had this to say (courtesy of Bloomberg):
"Bill Gross said a global race to devalue currencies in an "undeclared" war risks slowing growth instead of stimulating it.
Central bank policies have pushed interest rates below zero in Europe, and countries including China and Japan appear to be devaluing their currencies.. While such moves make debt burdens more tolerable and exports cheaper, they are bound to hurt the global economy as a whole, he wrote.
"Common sense would argue the global economy cannot devalue against itself," Gross wrote. "Either the strong dollar weakens the world's current growth locomotive (the U.S.) or else their near in unison devaluation effort fails to lead to the desired results."
More importantly, Gross wrote, low to negative interest rates hamper the functioning of capital markets and prompt investors to take on higher risk to boost returns, making the financial system more vulnerable."
So in effect gold is an each way bet. If currencies (the AUD included) continue to be devalued (by lowering rates or printing money) you win. If this unprecedented "currency war" ends in a financial collapse, you win. That you can buy in now at historically low prices means you also win the 'buy low, sell high' game.
 
US jobs growth looking behind the headlines
Both gold and US shares got smashed Friday night with the release of the US non farm payroll employment figures showing a strong 295K new jobs added and the unemployment rate dropping to 5.5%. The market read this as evidence we will see the US Fed raise rates earlier than expected and hence a reason to get out of the over inflated sharemarket with the prospect of yield elsewhere and gold down as the cost to carry would increase and 'everything is awesome'
But again looking behind the headline and we saw a large contributor to the unemployment rate dropping was in fact more people dropping out of the labour force, with the participation rate now down to 62.8%, the worst in almost 40 years. There are now 92.9m people in the US not in the workforce, 6.5m of them actively wanting a job. Wage growth was also very weak at just 0.1%, in part because of a continuation of the trend of less full time jobs and more lower paying, less secure part time jobs.
Indeed if you look at the time since the rate was last down to 5.5%, May 2008, the US has seen its population grow by 16.8m people but has a deficit of 140K full time jobs created and 2.7m new part time jobs. So in effect, not a single one of the expanded population got a full time job and only 14.3m got a part time job. The graph below courtesy of ZeroHedge paints the picture
So whilst the 295K/5.5% headline is encouraging, we need the context of full story before getting too bullish about the US recovery and its sustainability. Remember that every 1% increase in rates in the US means more than $150b in interest they have to pay on their debt, when they are already printing money to pay the current burden.
It is going to be a very tricky one for the US Fed to manage. If they want people to believe the recovery story they need to raise rates. Raise the rates and the whole house of cards could collapse. The speculation in the meantime, makes for great buying prices for gold and silver.

US%20jobs%20v%20pop.jpg
 
An interesting stat from the Jobs data : of the 295,000 jobs created only 96,000 people entered the jobs market. What happened to the other 200,000 ??
They were people already employed getting other part time jobs ? Great News
 
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