USAGOLD/Peter A. Grant/03-10-17
Gold caught a bit of a bid following this mornings better than expected jobs report, but subsequently lost momentum. The yellow metal is now consolidating just above $1200.
Nonfarm payrolls rose 235k in February, above expectations of 196k. The jobless rate ticked lower to 4.7%, as was expected. Hourly earnings were somewhat disappointing at +0.2% and the average workweek held steady at 34.4 hours.
This pretty much makes a rate hike next week a lock. The FOMC begins its two day meeting on Tuesday, March 14 and will announce policy and their economic projections on Wednesday, March 15. Janet Yellen will also hold a press conference that day and hopefully field some questions about mounting growth risks.
Adding to the volatility today is a Bloomberg article that says “European Central Bank policy makers considered the question of whether interest rates could rise before their bond-buying program comes to an end.” Citing Reuters, ZeroHedge suggested the discussion was apparently brief and without broad support.
Nonetheless, the euro surged to 3-week highs against the dollar as the bund/Tnote spread collapsed. “It’s a bit odd that you would continue to ease with QE and hike rates at the same, so we’re struggling to understand this a bit,” Rabobank strategist Lyn Graham-Taylor told Reuters.
I concur, it seems that if you want to tighten policy, the first thing you do is slow the growth of the balance sheet and then stop asset purchases altogether. And then raise rates. I don’t see that the ECB gains anything in doing it in reverse order; but who says central bankers have to make sense.
So, with even the ECB now reportedly at least cautiously discussing tighter policy, is the global economy and financial system really out of the woods? Janus bond guru Bill Gross thinks not.
In his March Investment Outlook, Gross warns “our highly levered financial system is like a truckload of nitro glycerin on a bumpy road. One mistake can set off a credit implosion . . .”
In the U.S., credit of $65 trillion is roughly 350% of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300%. Since 2007, China has added $24 trillion worth of debt to its collective balance sheet. Over the same period, the U.S. and Europe only added $12 trillion each. — Bill Gross
It’s like we learned nothing at all from the financial crisis and ensuing Great Recession. Instead we borrowed even more aggressively from our collective futures, but never really generated enough momentum to achieve escape velocity.
Now we’re even more leveraged than ever before and one mistake could lead to Bill Gross’ worst case scenario. KABOOM!
As a hedge against that risk, savvy investors are scaling out of overvalued stocks and bolstering their gold holdings. As Gross eludes to in his outlook (citing Will Rogers), the return of your money is far more important at some point than the return on your money. Nothing preserves wealth like physical gold in your procession.