Jan 08 a.m. (USAGOLD) -- Gold is trading higher in early US trading, bolstered by the Bank of England's decision to cut the repo rate by 50bp to a record low of 1.5%. Ongoing concerns about the global economy, bleak expectations for tomorrow's US payrolls number and heightened geopolitical tensions in the Middle East and on the subcontinent are all helping to underpin the yellow metal.
Yesterday's ADP employment survey showed private sector job losses of 693k in Dec. This does not bode well for Friday's BLS payrolls number. Many analysts were looking for Dec nonfarm payrolls to come in around -500k, but better than the 533k payrolls loss from Nov.
The bleak ADP data has many analysts revising their forecasts and calling for yet another acceleration in job losses. Some estimates suggest payrolls could decline by as much as 700k in Dec. Probably more disturbing is the fact that some analysts now believe we could see 1 million job losses in a single month -- possibly as soon as Jan or Feb.
The US unemployment rate is likely to exceed 7% in Dec. Eurozone unemployment for Dec came in at 7.8% today.
The trend in employment is quite disturbing and is likely to weigh on the stock market and the dollar. As more people file for unemployment that bill obviously continues to grow. More people out of work means weaker demand for goods and services. It also means the magnitude of any stimulus to revive the economy is going to have to grow.
The Fed and Treasury have already indicated that they are prepared to keep interest rates at zero and print as much money as is necessary to stimulate the economy. It seems the Obama administration is going to push through a fiscal stimulus as their first order of business as well. Speculation on the size of that plan is ranging from about $800 bln to $1.2 trillion.
There is a staggering amount of liquidity sloshing around the system at this point, yet credit is far from being readily attainable. Those that have access to credit don't seem to be utilizing it. The housing market remains extremely soft and auto sales are abysmal.
I'm in the market for a new car myself, but I'm inclined to wait and see what kinds of incentives are offered either through the auto manufacturers themselves or directly through the government in the months ahead. I've heard the federal government is considering a rebate of state and city sales taxes on auto purchases. That could mean a couple thousand dollars coming back to me. Certainly worth the wait.
What more might the government do to get people spending again? Given what they've already tried, and what has failed, that's a rather frightening question.
I got an e-newsletter yesterday that stated the following: The money being spent on the economic bailouts now totals more than the New Deal... the entire Iraq war... the lifetime budget of NASA... the 1980s Savings & Loan crisis... and all the dollars spent on the Korean War - combined!
I haven't verified all that, but it seems plausible. Obviously the size of the US and global economies is substantially larger than when those historic events occurred. Nonetheless, the statement provides an interesting perspective.
What is happening in the global markets is huge, it's unprecedented and still nobody seems to have a handle on what might happen next. Therefore it seems to make perfect sense to shelter at least a portion of your wealth in a physical asset that you can actually touch...gold.
