The Mess That Greenspan Made - Part 32

After rising for six weeks, gold and silver prices fell for the third straight week as bearish forces strengthened, the most important being an improving U.S. economy that has led many investors to think the Federal Reserve will raise interest rates sooner rather than later.

GoldThough the disappointing labor report on Friday cast new doubt on the pace of the recovery and led to a gold market rally, data released earlier in the week on economic growth and wage increases pointed to a less accommodative central bank and a stronger dollar later this year and early in 2015.

Safe haven demand continues to be one of the very few positive near-term catalysts for precious metals and, given recent developments in Ukraine and the Middle East, this could drive prices sharply higher at any time. B

ut the lack of Asian buyers over the summer and the ongoing weakness in broad commodity markets will make it difficult for metal prices to rise in the month ahead and positive seasonal factors may not help either.

The gold price fell below the key $1,300 an ounce level on Tuesday and added to those losses after better-than-expected GDP growth was reported on Wednesday and rising wages were reported on Thursday.

The metal ended July with a loss of over two percent and, as shown below, has recently made a mockery of the regular seasonal patterns by moving opposite the norm over each of the last four months…

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Monday Morning Links

MUST READS
Investors cheer Portuguese bank rescue – Reuters
Banco Espirito Santo split in €4.9bn rescue plan – Telegraph
Banco Espirito Santo Junior Bonds Slide as Bailout Forces Losses – Bloomberg
Russian Fighter Jet Chased US Spy Plane Into Sweden One Day After MH17 Crash – IBT
Iraq conflict: ISIS fighters seize Mosul Dam, oilfield and 3 towns – CBC News
How Fracking Blows Up Balance Sheets of Oil and Gas Companies – WolfStreet
Recession Generation: How Millennials Are Changing Money Management Forever – Forbes
The terrifying possibilities that have Elon Musk worried about artificial intelligence – Quartz
The diverse universe of ‘folks’, according to President Obama – Washington Post
Watch out for the corporate debt bomb – MarketWatch
‘Flash Boys’ and the Speed of Lies – Bloomberg
Welcome to the New Dark Age – The Burning Platform
A Hint of Advance Warning – Hussman Funds

MARKETS/INVESTING
Stock futures up as investors look to claw back ground – MarketWatch
Far from 10% correction, investor pain mounts – USA Today
A Closer Look: Commodities – Alhambra Partners
China’s Stocks Rise to Eight-Month High as Chalco Rallies – Businessweek
The next crisis? We’re hardwiring short-termism into the financial system – Telegraph
Treasuries Little Changed as Investors Consider Fed Exit Plans – Bloomberg
Gold steadies near $1,295/oz as rate hike talk recedes – Reuters
Why Did Ron Paul Say Gold Could Go To Infinity? – Forbes
False Breakdowns And Breakouts Suggest Indecision – GoldSilverWorlds
India gold jewellery imports surge 10% in Q1, gold bar imports slip 3% – Mineweb
Gold price risk is still to downside – Mining.com

ECONOMY/WORLD/HOUSING/BANKING
USA’s love affair with debt is a problem – USA Today
US Economy Rebounds—with More Upside Likely – PragCap
Jobs And GDP Reports Reveal Keynesians’ Cluelessness – Forbes
Booming African Lion Economies Gear Up to Emulate Asians – Bloomberg
Top One Percent Has One Third of China’s Wealth, Research Shows – Caixin Online
Hong Kong has the opposite problem to China’s: too many women – Quartz
‘Premature’ to relax property cooling measures now – Channel News Asia
UK house-building PMI grows at fastest rate since 2003 – Economic Times
A Look At The Housing Market Eight Years After The Collapse – Forbes
Test Approaches for Yellen’s Nerves and Judgment – WSJ
Central bank meetings to set stage for parting of ways – Reuters
Why macro stabilization policy rarely fixes problems – Money Illusion

 

The latest issue of the Iacono Research Weekend Update has been posted to the website and is now available for subscribers here.

There will be no changes to the model portfolio or the buy ratings this week, but last week’s Fed meeting and economic reports are detailed along with what is increasingly being called a stock market bubble in the following discussion topics:

The executive summary is as follows:

After some very good economic reports in the U.S. and more talk by Federal Reserve hawks about raising interest rates sooner rather than later, U.S. equity markets experienced their heaviest selling in two years after notching new record highs the week prior. Violence in Gaza, Ukraine, and elsewhere added to stock investors’ skittishness while also pushing the U.S. dollar higher and this pressured commodities markets.

A rebounding China economy sent share prices higher there, however, this was about the only asset class that saw gains as even safe haven investments such as U.S. Treasuries and precious metals moved lower. The financial media is now full of warnings about a long overdue correction (or much worse) as the two worst months of the year for stocks – September and October – quickly approach. For the week, the model portfolio fell 1.4 percent and is now up 8.2 percent for the year.

Want more Iacono Research? Subscribe now, risk-free for 45 days.

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The Labor Department reported that U.S. employers added 209,000 jobs in July and prior months were revised slightly higher as the unemployment rate rose from 6.1 percent to 6.2 percent, due largely to people entering the labor force but not being able to find work.

In a separate report from the Institute for Supply Management, the broadest measure of the nation’s manufacturing sector showed strong growth last month as the Purchasing Managers Index rose from 55.3 in June to 57.1 in July, the highest level since April 2011.

The key new orders index jumped from 58.9 to 63.4, the best reading of the year, and the employment index rose from 52.8 to 58.2, the best reading in over two years.

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