-- Posted Monday, 3 August 2009 | Digg This Article
| | Source: GoldSeek.com
Aug Gold: Open= 952.6 High= 964.0 Low= 952.4 Last= 956.5 +2.8
With Congress now in summer recess, equity markets have breathed a sigh of relief that for another few weeks, the prospects of massive new government spending and burdensome regulations are delayed. While slight, a change of tone from the White House may be signaling that Democrats will be touting health-insurance reform more than health-care reform, which won’t come with such a visible sticker shock.
The real good news today, however, were the ISM and construction spending figures. For the sixth-straight month, the ISM number has risen, now standing at 48.9. A reading above 50 signals a rise in the manufacturing sector. So while the sector still recorded a contraction in June, the pace of slowing has dramatically reduced in the past year-to-date. Construction spending saw an unexpected increase last month, helping boost economic sentiment even more. The rest of the week sees reports for personal income, ISM non-manufacturing, factory orders, and is capped off by June’s unemployment number.
For those that have lost perspective, the NBER says the recession began in late 2007, in which the stock market topped out over 20 months ago. The S&P dropped 921 points from the high in October ’07 to the low in March ’09, losing over 57% of its value. As of today’s high, the market has yet to even correct to the first Fibonacci Retracement level of 38.2%. So, to say that the market has rallied ‘too far, too fast’, or suggesting we’ll fall back into a W pattern might be ignoring the fact that March was the low in the market. Commodity prices have bottomed, it appears manufacturing is finding its footing, businesses have instituted price controls and by in-large the market has done a relatively good job at de-leveraging itself.
This does not mean all is smooth sailing from here. Housing is still problematic and will continue to be so, but the economy can recover with returning to a housing bubble. What could kill economic recovery is inflation. The value of the U.S. dollar is waning in a seemingly telegraphed fashion. The Chinese, Russians, and many other nations have warned, loudly, that U.S. government spending is out of control and that they may be forced to abandon the dollar as the world’s currency reserve. This talk is not occurring in secret rooms, or between ambassadors, but openly in the world’s press.
The reaction from the Obama Administration has been resoundingly quiet, tacitly acknowledging that they are not inclined to hem in social spending and foreign borrowing. If that money cannot be borrowed, then taxes in some form will be raised, as Treasury Secretary Tim Geithner said of the weekend, “it is not a matter of if, but when.” The White House denies taxes will be raised on those making under $250,000 (whether that is combined or sole income is not clear) but many pundits are conceding that if income taxes are not raised across the board then some sort of VAT tax or national sales tax will be considered. While perhaps this is less damaging to the dollar than unchecked borrowing, it is downright negative to the economy as government soaks up money that could be better utilized in the private sector; i.e. opportunity costs. Not to mention the loss of economic freedom of the individual.
What this means for gold prices is that as long as the U.S. dollar is under attack, gold will remain supported. It may not advance as quickly as other sectors, such as commodities or stocks, when inflation returns but it will likely be a better place of value than holding cash. As seen today, stocks were up 1.5%, energies up over 3.0%, ags up over 3.0%, yet gold was up less than 1.0%, which was roughly the same as the change in the U.S. dollar index. Even silver performed stronger as an industrial metal today. Corrections should be bought until price support is breached or the fundamentals begin to change.
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Thomas Hartmann
Altavest Worldwide Trading, Inc.
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-- Posted Monday, 3 August 2009 | Digg This Article | Source: GoldSeek.com
