Early this morning, gold and silver both tumbled as the market waited for unemployment numbers from the US government. Silver dropped to $29.70 in early-hours trading, the first time to be that low since January. Why are prices falling? Because the economic situation looks bleak, at least for the short-run. This could change, though, and we could move right back into bubble territory soon.
Earlier today (May 4th), the government reported that employment increased about 100k, not enough to make up for 1% population growth. They were expecting about 50% more jobs created, so the news hit a sour note. Right now there are more unemployed people than there were last month, but the unemployment rate is down because of people retiring and people giving up looking for a job.
So the unemployment rate is going down… but a smaller percentage of the market is working than ever before while our national debt is still happily exploding. Why is the unemployment rate going down? Because they only count people actually actively looking for a job, and not people who take an early retirement, stop working altogether, get a part-time job that doesn’t even pay all of the bills, or go on Social Security.
In other words, the unemployment rate is a joke — and that’s why it’s dipped slightly this month. I’ve written about this before in The Recovery is a Lie.
What the Fed Will Do
For the short-run, interest rates will likely stay flat for a while, as I’ve reported in the past. The real question is when interest rates will increase, because that will likely either trigger a major economic slowdown and possibly a crash for gold at least for the short-run.
Right now, the US economy is essentially stuck in a kind of double bind. If interest rates stay low, loans are being created, inflation is being created, and the loans are unnatural and likely to cause malinvestment. But if interest rates are increased, it’ll likely kick off an economic slowdown.
Gold hasn’t yet reached its 2011 highs in over half of a year, and there’s a good chance that gold will slide unless some sort of discussion about QE3 begins to pick up a lot of steam.
If QE3 does pick up steam, and the Fed hints at another round, this could begin to kick off a whole new round of gold price records. If, however, the bubble begins to pick up steam before hand, and “unemployment goes down” according to government data, the institutional investors and people who believe the media will likely begin buying stocks and selling gold again, meaning prices for gold could get pushed back into the dirt.
Is a Recession Imminent?
I’m honestly not sure. Jim Rogers, a strong free-market believer, has explained that he think the Fed is going to do everything it can to create bubble after bubble in 2012. If the government fails, we’re likely to see a brand-new recession.
This is scary, because the government has essentially run out of bullets. Our debt is absolutely exploding and it’s not bloody working. It doesn’t work.
I ranted about this a few days ago, and it’s still true. The money-printing has mostly failed. We likely only have a few more bubbles, at most, before the bond markets begin to rebel, forcing our government to either just default on the debt via inflation, or default some other way.
Either way, the long-term outlook on gold is good. I’m buying more literally every month, mostly through SilverSaver. I have no intention of changing my strategy, regardless of what happens to gold prices. I’m in this for the long haul. Soon, I’ll be writing about the national debt and why that makes the long-term outlook for hard assets wonderful.
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