Monday, July 6, 2009

As I Was Saying Last Friday...

So You Think Gold Fell Due To A “Strong Dollar”? Don’t Make Me Laugh
By Andy Hoffman
Just a month ago, the Dow Jones Industrial Average was completing a bizarre run from 6,800 to 8,800, following the monster decline from 14,000 less than a year ago. Aside from the obvious “dead cat bounce” phenomenon, the market (helped, of course, by the omnipresent PPT) was aglow with dreams of “green shoots of economic recovery”, a propagandist platform created by a combination of Washington, Wall Street, and scheming media outlets such as CNBC.

There was no real evidence of such a recovery (even in “massaged” government figures), other than that the freefall of economic activity that commenced last autumn had started to slow to a more normalized decline, hardly what I would call reason for excitement. And given the major bankruptcies of General Motors and Chrysler that have occurred since then, as well as continued declines in real estate prices and rising unemployment, I find it laughable that anyone would entertain such a ridiculous idea that the economy is “bottoming.” But that’s another story altogether.

At that point, on roughly June 5th, the stock market peaked following the “bombshell” (facetious) news that May U.S. non-farm payrolls had “only declined by 345,000” compared to the 530,000 estimate. Never mind that the government’s favorite new fudging tool, the employment “Birth/Death model”, added a miraculous 220,000 phantom jobs, its highest level ever by a large margin (except for April, when it added 226,000), preventing the real number from being reported as 565,000. Nor that the ADP employment report, released days earlier, claimed that 473,000 jobs had been lost. All that mattered to the public is that the U.S. government said it was just 345,000, and as we all know, the U.S. government is always truthful.

By the way, yesterday’s reported 467,000 June job loss included a 185,000 phantom job gain from the aforementioned Birth/Death Model, meaning the real number was closer to 652,000. In fact, I’d argue that, if anything, the amount of unreported jobs is going DOWN, not up. Does anyone know someone that just lost their job, and as a result is starting their own business in this environment?

Yeah, right.

In the backdrop of the above stock market scenario, gold had quietly crept up to $980-$990, where over a two-week period in late May/early June it mysteriously was blocked at least a half dozen times in its attempt to yet again reach the important psychological $1,000 level, all at a time when “inflation expectations” were soaring yielding surging interest rates and commodity prices.

However, as you can see below, gold’s rise was finally put to rest the day of the June 5th “better than expected” employment report, with the newspaper headlines gleefully shrilling “gold falls due to strong dollar, end of safe haven trade” because the dollar happened to rise that day. Of course, I challenge anyone to find even one piece of evidence to support the assumption that gold demand was falling (in fact, to the contrary), not to mention that the dollar, even after that day’s rally, was still sitting near its lows after a painful 10% correction (10% is a HUGE MOVE for a major currency).

But that’s how the Gold Cartel game works.

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