Did Gold Just Top?
After November’s employment report, gold dove nearly 5% on better than expected employment numbers. With only 11,000 jobs lost and the unemployment rate dipping from 10.2% to 10%, investors figured that an improving economy would force the Federal Reserve to increase interest rates, fighting off inflation.
Trader Psychology
Gold’s dip of nearly 5% is significant, and it shows that investors are buying gold as an uncertainty play more than they are inflation. Though bank reserves at the Federal Reserve cannot be wound down, interest rate policy can affect how much of the reserves trickle into M2 money supply. Its fairly safe to say that if consumers aren’t willing to borrow now, with nearly free money, that higher rates are going to even further discourage borrowing and spending.
What about the jobs?
Not for a second should anyone expect that this is the huge recovery we’ve all been waiting for. Retail hirings in the past month have helped fill in the gap in employment while the drop in the unemployment rate had more to do with how the calculations work than the actual employment scenario. Unemployment is calculated by the number of people who are 1) still looking for a job and 2) are qualified to receive federal unemployment benefits. Since unemployment benefits end after 9 months of unemployment, it is likely that the improvement was from January’s firings losing their monthly checks.
It is a good six plus months since the article was written, but gold has not topped. Gold price reactions are not due to just supply and demand any more. Look for more price action due to the credit criss’s, bank closures, morgage defaults, more government stimulas, growing government debt & deficits, and politics. Having some wealth that is not in the bank or in the stock market may not be a bad idea, like gold and silver.