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Gold Shines as Employment Recession Cries for More Stimulus

Written by  seekinGold


The terrible job report tells us that the question is not "Will there be QE3"? But how many quantitative easing we are going to see before the system breaks down? Each time Fed eases money, the action will have less effect on the economy, but will send gold higher and higher.

The U.S. economy added fewest jobs since September and the unemployment rate hit its highest level since December, ouch! This employment recession is experiencing the weakest recovery and the most aggressive job cuts since World War II (see the graph below).

Nonfarm payrolls rose +18K far less than +125K expected, +25K previous (revised from +54K). Unemployment 9.2% vs. 9.1% expected, 9.1% prior. For the first time this year U-6 total unemployed rose to 16.4% from 15.4% last month, long-term unemployed (over 27 weeks looking) rose to 6.3M from 6.2M.

Wages fell last month and Uncle Sam needs more of our paychecks. HR 2411, the “Reduce America’s Debt Now Act of 2011” states that every worker in America should be able to voluntarily have a portion of his/her wages automatically withheld and sent directly to the Treasury Department for the purposes of paying down the federal debt. Now US needs to generate 254,000 jobs a month for 65 months to get to pre-depression employment by end of Obama’s second term, writes Zero Hedge.

Austan Goolsbee, Obama economic adviser, says “ This is not a double dip…this is a reflection and reiteration that the growth rate slowed at the beginning of this year”. His recommendation is passing free trade agreements to securing a deal on long-term deficit reduction.

The news is obviously highly bullish for gold investors. The metal rose to $1,545 an ounce and can trend higher as fear spreads among equity investors. S&P fell 1.4% but recovered some of the losses to finish at -0.70%. Quite unfortunately for gold equity investors, most of the gold stocks fell along with the market. This raises the question that in this era, whether gold investors are better off investing in physical gold (or GLD) or gold stocks?

A colorful/depressing graph (depends on your attitude and portfolio) courtesy of Calculated Risk shows the job losses from the start of the employment recession, in percentage terms, aligned at the start of the recession. The 2007 recession is by far the worst since WWII.

job losses

Original Article.

Last modified on Friday, 08 July 2011 21:31
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