Gold retreated from 7-week highs after better than expected July jobs data finally gave the dollar something to smile about. The nearly 1% rise in the dollar index today, knocked gold down by a similar amount, resulting in new lows for the week.
However, jobs are the least of the Fed’s worries; at least what is revealed by the headline numbers. If they paid any attention to the quality of those jobs, they might be a little concerned on that front as well. For now though, the absence of inflation is the far greater concern.
Hence today’s data did nothing to put September back on the table for a rate hike. Fed funds futures put the probability at 1.4% and December remains near a 50/50 proposition.
The OECD reported this week that consumer prices across the G20 are at their lowest level since 2009, when the world was first climbing out of the global recession. That is particularly concerning given the trillions of dollars, yen, euros, francs and pounds that were pumped into the system over the past decade.
“The massive global QE liquidity went somewhere, as money always does. The liquidity did not go where the central bankers wanted. It went into asset bubbles,” says analyst Mike “Mish” Shedlock. So not only do they not have the kind of inflation they desire, but they have asset bubbles to boot.
Stocks, bonds and housing are all looking very frothy at this point and it’s feeling very similar to the pre-financial-crisis days. “Every day more evidence mounts that almost exactly the same debt excesses that caused The Global Financial Crisis (GFC) in 2008, are present today,” warned Societe Generale strategist Albert Edwards.
I think the excesses extend far beyond just “debt excesses,” although the additional global debt accumulated since the financial crisis is probably the biggest single concern. That concern is likely to escalate early next month when the U.S. Congress is faced with having to raise the debt ceiling once again.
The fact that the DJIA is only up about 40 points today, despite the robust jobs data, may warrant some level of concern. Frank E. Holmes, Chairman/CEO/CIO of U.S. Global Investors provides a little perspective and perhaps a thinly veiled allocation suggestion:
His accompanying chart is illuminating:
What is startling to me is, despite the last 18-years of comparative performance, so few investors actually own gold. There may well come a day when they come to realize the advantages of a gold allocation as part of a well diversified portfolio. At that point, the rally in the yellow metal will likely be impressive indeed.