Labor statistics were reported last week and they stunk again, as just 148,000 jobs were added. A number twice that amount is good, but three times is what we really need. Even so “the market” instantly traded up on the weak labor stats. Why?
Because a poor jobs market means continued quantitative easing (QE). Every time the prospect of more free money comes into play Wall Street applauds with higher stock prices. That shows you how greedy they are, and more importantly, how stock market bubbles are created.
“The market” is up 20% this year, and the 15-51 strength Indicator is in positive territory for the first time all year. It’s up 6%. Gold continues to run contrary to Market conditions and is down 20% in the same time. And since the QE taper appears to be long off into the future, yields have reversed course. See below.
Every month I receive many emails, phone calls, and text messages about gold’s lackluster performance. Some people think they missed the upside and only lower valuations are in its future.
I couldn’t disagree more.
Gold is a different beast, indeed. It’s difficult to value because there is no business behind it – no operating structure, net income, or CEO. It’s a commodity, where value is derived by the market forces of supply and demand. But the basic fundamentals of gold are firm and true: the demand for gold increases during times of monetary uncertainty. Its value also rises during periods of monetary devaluation.
To be sure, the price of gold has corrected, down 29% since reaching its all-time two years ago (see below). And it is also true that monetary conditions for world currencies have only gotten worse since reaching that high. That is to say that both gold and currencies are traveling the same downward trend.
This paradox is reflective of the stock market, where all-time highs are happening with a weak and fragile underlying economy. These inconsistencies are not new paradigms but rather asset bubbles (stocks) and buy points (gold) that naturally occur in free market trading – especially when affected by ill-conceived government programs like QE.
As I say in my book, staying ahead of “the market” takes little more than taking your cues from actual Market conditions – not pricing anomalies of marketable securities that are misleading, manipulated, and corrupted.
And that’s the shape they’re in.
Stay tuned…