-- Posted Monday, 8 December 2008 | Digg This Article
| Source: GoldSeek.com
The Morning Gold Report by Peter A. Grant
Dec 08 a.m. (USAGOLD) -- Last week ended on a pretty grim note, with US nonfarm payrolls for Nov plunging 533k. Sep and Oct data were revised sharply lower as well, confirming that job losses are accelerating at a disturbing pace going into year-end.
The jobless rate surged to a 15-year high of 6.7%, setting up what may end up being the worst Christmas shopping season since 1980, and perhaps since 1974. BofA Securities came out with a forecast suggesting that the unemployment rate could reach 8% by mid-2009.
With producer sentiment plummeting, there is little reason to question this bleak outlook. In fact, it seems safe to expect the flood of dire economic data to continue well into 2009.
The ECB, BoE and BRI slashed rates last week as efforts continue to free-up tight credit markets. The Fed's FOMC committee will meet next week to consider further rate cuts as well. Fed funds futures have priced in a 75bp rate cut, which would drop Fed funds to 0.25%.
Expectation of further rate cuts, along with heightened anticipation of debt monetization here in the US has the dollar looking rather toppy. Today's retreat below 86.00 in the dollar index suggests potential for further retracement back toward 84.00.
EUR-USD has surged through the downtrending 50-day moving average, returning focus to the 1.3080 peak from 25-Nov. Penetration of the latter would highlight the 1.3297 peak from 30-Oct initially, put potential at that point would call for a challenge of the 100-day moving average, which is presently at 1.3623.
We have seen gold trading at new record highs, or in close proximity to record highs, against many currencies. If the dollar resumes its long-term downtrend, we would expect gold to resume its long-term uptrend against the greenback.
Stocks are firmer today on talk of stimulus packages in the EU and another in China. A bailout for the US auto industry is looking increasingly likely this week as well. In addition, President-elect Obama is likely to float a rather sizable fiscal stimulus program early in his administration.
With trillions worth of new liquidity already in the system, and more likely on the way, concerns about inflation are growing. More concerning is the lack of results efforts to date have garnered in freeing up-credit markets.
What will ultimately be the dollar amount required to illicit free flowing credit once again? Certainly the banks and credit companies are not going to be inclined to take on additional risks at this point with employment in free-fall. Will the government have to step-in and guarantee all borrowing?
Given the broad-based-economic uncertainty, systemic risk and mounting counterparty risk, gold continues to shine as the safe-haven asset of choice. Factor in the inflation risk as well and you'd be hard-pressed to find any asset class that offers a similar degree of wealth preservation.
Gold Market Movers:
Gold rallies as investors fret about inflation
Deflation virus is moving the policy test beyond 1930s extremes
Bank of England mulls "nuclear option" of cash injections
China wealth fund sees dollar strength as temporary
A grim economic forecast
Red alert: Gold Backwardization
