The 84k decline in nonfarm payrolls in Aug, along with -58k in revisions to previous months pushed the unemployment rate to 6.1%. August marked the eighth consecutive month of job losses and pushed the jobless rate to a 5-year high.

Ultimately, all aspects of the economy are dependent on people working, everything from consumer spending to confidence hinges on jobs. Therefore these data are extremely troubling and another strong indication that the US economy is in recession.

There has been much talk in recent weeks that the US was likely to weather the current economic storm in better shape than other G-7 countries. The dollar was indeed bolstered as funds flowed out of Europe and Japan. The recent disappointment in retail sales and now the poor payrolls number raises some doubts about that assertion. Nonetheless, the greenback remains resilient today.

Someone on one of the business talk shows said this week that the US stock market was the best place to be with economies elsewhere in the world contracting. One look at the DJIA chart, even before yesterday's sharp sell-off, painted a strikingly different picture.

The DJIA appears to have been consolidating in an ascending wedge pattern since establishing the 10,732 in mid-July. Volume was also on the decline over the past seven weeks and the market stayed well below the 100-day moving average. Yesterday's 355-point drop violated the lower boundary of the wedge pattern and we've seen downside follow-through in equities today.

More than 61.8% of the rally from 10,732 to 11,934 (11-Aug high) has now been retraced. A retest of the low is now likely and a measuring objective off of the wedge pattern projects to 10,350 initially, but potential could be as low as 10,000.

So all of this capital has flowed back into the dollar in recent weeks, now the question is; what do you do with it? Yields are extremely low here, well below the inflation rate. As just noted, the US equities market is looking extremely vulnerable. I believe that gold is going to be viewed as an increasingly attractive means to preserve wealth as the global economic storm continues.

With a US recession looking increasingly likely, there is a growing expectation that the Fed may seek to further stimulate the economy with more rate cuts. Fed funds futures for Dec and Jan are now showing an implied rate below 2.0%. That's quite a turnaround given that the market was pricing in 75bp worth of rate hikes not too long ago.

I still think the Fed is on hold through year-end, but the shift from an expectation of tightening to an expectation of easing should weigh on the dollar. As highlighted in yesterday's comment, you can already get more than twice the yield in Europe and the UK. If the dollar begins to retrace some of the recent gains, it is going to provide additional support to gold.

The prospect for slower growth in the US is helping to keep oil under pressure, but the correlation between oil and gold has eroded further today. Perhaps this is the long awaited shift in sentiment that we've been anticipating; where gold will once again be viewed as a monetary asset rather than just another component of the commodity complex.

The gold/oil ratio surged to 7.75 today, lending additional credence to our outlook for a rebound to 8. If the latter is eventually exceeded, the ratio could continue to recover back toward the historic norm around 15. That obviously would be very bullish for gold.

Gold Market Movers:

Canadian Ivey PMI tumbled to 51.5, much worse than the market was expecting.

US nonfarm payrolls for Aug -84k, below expectations.

Canadian jobs for Aug +15k, above market expectations.

Unemployment rate unexpectedly soars to 6.1%

Jobs do a number on stocks

Record 1.2 million homes hit by foreclosure

ECB to cut life support

Russian stocks, bonds tumble as central bank props up ruble