On the day when the US Treasury debt market suffered its biggest one-day bloodbath yet this year, spot future Comex Gold swooned $US 9.40 to a new 2004 low of $US 379.10. The fall was attributed to a sharp rise in the US Dollar, with the $US index climbing 1.22 points to close at 91.31 - 0.12 short of its 2004 high. The Dollar, in its turn, rose on a "strong" US employment report for April in which a reported 288,000 new jobs were created (the official figure for March was 308,000 new jobs).
As we say in Australia, the jobs report is a "furphy" - "furphy n.(pl.furphies) 1 a false report or rumour. 2 an absurd story. •adj.(furphier, furphiest) absurdly false, unbelievable: that’s the furphiest bit of news I ever heard."
The 308,000 "jobs" created in March were almost 95% part time jobs. On top of that, new government jobs exceeded the total, private sector joblessness rose. On top of that, nearly 400,000 Americans ran out of unemployment insurance payments in March and had no choice but to take a job - ANY job.
Nonetheless, the March US employment report "worked". It boosted the Dollar and the stock markets. It hit Gold on the head. It also caused a bloodbath on US Treasury markets. The April jobs report released on May 7 also boosted the Dollar, but this time it didn't boost US stock markets. Gold was down hard, as was silver. And the US bond market suffered a one-day bloodbath in its unravelling markets which dwarfed the one which greeted the March jobs report.
Please remember this clearly. US Treasury bonds have been in a bull market ever since the end of 1994. The bubble burst in June last year, but the uptrend still held. As of this writing, we do not yet have the final chart updates for May 7, but it is certain that a new DOWNTREND line has been established on the ten-year Treasury chart. It is equally certain that if the major uptrend supporting the post 1994 bull market has not yet been breached, it will be if 10 year yields keep rising at all from present levels.
Here are the relative performances of $US Gold, the $US Index, and the Dow since Gold broke above $US 300 to stay on March 27, 2002:
|
If you doubt that Gold's breaking back above the $US 300 barrier to stay in March 2002 was a "sea change" for world markets, a glance at the percentages in this table should settle the matter beyond all reasonable doubt. As you can see, that has not changed despite the dive in the Gold price over the past three weeks.
Last week, the swan dive came out of the clear blue sky - a $US 13.20 dump on April 28. This week, the swan dive has come on a jobs report - Gold down $US 9.30 on May 7. On the daily chart, Gold has taken out potential support in the mid $US 380s by falling to a new 2004 low.
On the weekly bar chart, Gold has spent the week below its longer-term (200 day) moving average just as it did at the bottom of the severe correction of April 2003. The uptrend line based on the December 2001 lows presently stands just above the $US 360 level. Given the total disorientation of markets at present, Gold does indeed have the potential to descend closer to or even up to that line.
On the point and figure chart, Gold continues to saw on both sides of the downtrend (dotted red) line drawn through Gold's two previous peaks. This chart, being based on closing prices, does not show Gold's intraday retreat to $US 380 on April 29, thus the $US 379.10 lows of May 7 have plumbed new depths on it. The next major uptrend line on this chart is presently just above the $U 375.00 level.
Here's another perspective - a comparison between Gold's 2002 low and its present price and the $US index 2002 high and its present "price". All data is on CLOSING levels:
|
After years of "jobless recovery", the US employment statistics for March and now April are being grasped like manna from heaven. As far as the financial press is concerned, this is the last missing piece of the recovery puzzle. Now, with "robust job growth" a reality, economic "growth" has its final underpinnings. With the recovery now solid, the demand for Dollars is sure to rise, since that is the way for the rest of the world to do what they have "always" done, to flock to US investment markets to get rich too.
Tell that to the bond traders, or to the Central Bankers in Japan and China who are seing the "value" of their GIGANTIC US Treasury portfolios take a bath. For the moment, the bloodletting that the Japanese are suffering in Treasuries is partially offset by the rise of the Dollar against the Yen. The Chinese have no such benefit since their currency is fixed against the Dollar.
There has never been an instance in any nation where the paper markets and ultimately the paper currency survives a collapse in the markets for government debt paper. This is true for the very simple reason that the government debt paper is the "foundation" on which the huge new quantities of "money" which built up the other paper markets were built. Remove the foundation and the structure crumbles.
That is what has happened repeatedly in nation after region after hemisphere on a more rapidly recurring basis throughout the last three decades plus. It almost happened in the US at the end of the 1970s. It has not happened - in the US - since.
Now, it is most inexorably happening again, as telegraphed by the US debt markets. This week was the worst this year for Treasuries, and the spread between the Treasuries and the agency, corporate, and junk sector widened. For now, investors are mesmerised by US employment number which have no connection anywhere to reality. The Treasury "foundation" is crumbling, but it has not yet given way. The Fed is still sitting on official US rates, and the Treasury bull market, which began in late 1994, is still hovering at or just below its major uptrend line.
But Treasuries have been trending DOWN for almost a year now. Once the post-1994 uptrend is breached, and is seen to be breached, the remarkably sanguine present attitude towards the future of the US economy will evaporate like snow in a volcano. A repeat of the 1970s is coming, and because the situation today is so much worse, the result will be much "worse" too. Worse, that is, unless you protect yourself from it - with Gold.