Gold Investing: Keep On Keeping On

Front and center this morning is all the hootin’ and hollerin’ about the stock market move yesterday… At one point it was down 1,000 points… That’s right, I did not let my “fat fingers” mess that up… However, someone on Wall Street apparently did, as they meant to enter a trade to sell “millions” of shares of Procter & Gamble, but entered “Billions”… That’s Billions with a capital “B”, as Ronald Reagan used to say! Upon discovering the “fat fingers” error order was restored… However, the problem here is that stocks were down BIG TIME before the “fat fingers” error… It was a bad day a red rock for stocks.

And it was a bad day at red rock for the euro (EUR), and all the other currencies that it dragged through the 1,000 miles of broken glass… There were some exceptions, as Japanese yen (JPY) and Swiss francs (CHF) rallied along with the dollar… But the BIG WINNER on the day was gold… The shiny metal kicked sand in the face of the dollar all day and night, climbing back to $1,200 an ounce… Gold is selling a bit this morning, but is still above $1,200!

I have to wonder where the “gold price manipulators” were yesterday… Did they give up the ship? Did they throw in the towel, and go home with their bat and ball? I doubt it… You see, the pattern I notice, is this… They do not manipulate every day… And on a day like yesterday, it would have been suicide to step in front of that runaway train called gold.

The markets went severely into this funk of selling yesterday after the European Central Bank (ECB) failed to calm the markets… The ECB indicated it was taking no further action to stop the Greek debt crisis from spreading to weaker Eurozone financial markets.

ECB President Jean-Claude Trichet said the central bank didn’t discuss what the market calls the “nuclear option,” a procedure that would involve the purchase of government bonds in the secondary market.

Now, don’t get me wrong here… While the markets want the ECB to jump through hoops and do anything and every thing to calm the markets, they have stuck to their guns, in hopes that the markets finally realize that a central bank can’t be all things to all people… And to me… That’s the right thing to do! But, I worry about the ECB, and this decision, and wonder how long their finger in the dike is going to hold back the wave of water that will cause them to head to higher ground… If the markets don’t back off soon, The ECB is going to have egg all over their collective faces… And that’s not a good feeling, as I’ve been there, done that, and bought the T-shirt!

OK… Well… As I was packing up and getting ready to leave for the day yesterday, I told the folks on the desk that it looked like the euro would lose the 1.26 figure, as it was falling like a rock off a cliff… But… The “oversold” levels must have kicked in, and as stocks began to recover from the “fat finger” error, the euro began to rally… And this was quite the rally, as it moved from the low 1.26 handle to 1.2788 in late trading, overnight trading and European trading… Not in one session did we see the rally stall, or get reversed…

Now… Does this mean that the all-clear signal has sounded for the euro? Not hardly! The euro isn’t even close to getting out of the woods, folks… Should it be? Well in my opinion, the selling has been far too severe considering the fundamentals… Just this week, the euro had lost 4.2% before the turnaround yesterday afternoon… But… My opinion is… Well, it’s my opinion, and doesn’t move markets… Not one iota!

While stocks and euros were falling yesterday I wondered to myself… “Is this a ‘race to the bottom’?” I certainly hope not!

So… We’re a good way toward the end here, and I haven’t talked about the Big Kahuna this morning… The Jobs Jamboree! Yes, the first Friday of each month brings us the Jobs Jamboree, which the forecasters say we’ll see an increase of jobs created by 190K. Remember, what I told you yesterday… About 125K are government census workers… So, while 70K jobs created is better than the -500K jobs lost each month a year ago, I’m sorry to say that it’s not enough to feed an economy that wants to be strong.

When things in the Jobs Jamboree get all crazy, like now, I revert to my original thoughts on the subject, which is to ignore the jobs created, for there is not one indication in the report, what kind of jobs were created… Instead, I prefer to stick with inflation indicators of Average Earnings, and Average Weekly Hours. There’s still not a lot of wage inflation going on, folks… The workers that have jobs have their heads down and are not thinking of raises… But if you’re asking for raises, it’s no surprise they’re giving none away.

Speaking of working harder, longer hours… The stupid productivity data confirmed that we are doing just that! And… The Weekly Initial Jobless Claims were just about bang on the forecast of 440,000 printing at 444,000… The Continuing Claims continue to be a real problem, folks… People are not going back to work, as fast, as the media and government would have you believe!

In Canada, jobs are recovering too… The latest jobs data showed more jobs added than forecast last month… April’s increase was 108,700 new jobs, versus March’s increase of just 17,900. (And the markets thought that number was good, then!) Add this data to the roster of reasons that the Bank of Canada should be the first G-7 member country to raise rates! And, oh! The Canadian dollar/loonie (CAD) loved the data, and the fact that the euro recovered a bit to come back strong on the day/night…

The poor pound sterling (GBP)… It has not been allowed to come out and play with the euro and other currencies rallying overnight… You see the UK elections came out just like I said they would… A hung parliament… And when there are questions about country leadership, that country’s currency gets deep-sixed… In a heartbeat!

Another currency that’s just like a trip through the Wild West, the Brazilian real (BRL) has really demonstrated the “Emerging Markets Shuffle” this week… After climbing to 1.7260 on Monday, it has fallen to 1.8950 before recovering along with the euro to 1.8550 this morning. I think what we saw was the usual selling of emerging markets whenever there are problems in the world, and… Probably the Brazilian Central Bank looking at this sell-off as an opportunity to weaken the real even further, and most likely added their own sells, thus explaining the HUGE loss of the real this week.

But you know what? The real has been a real trooper the past couple of years, and has, in the past, come back strong, whenever it sees these wild swings… So, if that pattern were to hold true, one would think that these levels would be bargain basement levels… But, if there’s more selling of the euro, things could even get rougher for the real going forward… But, think about this before you pick up the phone and put in an order in to sell your reals… The real pays you a “risk premium” in interest… You can’t get interest paid to you any higher than the real pays anywhere around the world…

I sure would like to see the markets calm down a bit today going into the weekend… I guess the Jobs Jamboree will have a lot to say about that!

Then there was this… You know… Yesterday’s stock market sell-off may have been attributed to the “fat fingers” error… But think about this before you let the selling slide… Stocks were already down big time, so there was, if you will, a 3-1 count with the stocks pitching to Albert Pujols… Chances are the outcome isn’t going to be good for the pitcher… And so it was with stocks… No… They wouldn’t have sold off 1,000 points, but the fact remains they were already down, BIG, and… Their fundamentals are awful…

To recap… The BIG Sell off of stocks was caused by a “fat fingers” error yesterday, and as stock recovered, so did the euro, and the other currencies so affected by the euro’s decline… Today is a Jobs Jamboree Friday… Canada’s Jobs data was quite strong at 108,700 jobs added in April. And the European Central Bank left the markets hanging out on a line yesterday, as they failed (by markets’ requests) to calm the markets with some kind of announcement that they would jump through hoops to save Greece.

Chuck Butler
for The Daily Reckoning