by David Levenstein, Mountain Vision:
Gold and silver prices rallied early last week to hit three-week highs after the morning release of a very downbeat U.S. ISM non-manufacturing report for August. The gains extended Friday’s price advances after the release of the latest employment report in the US.
The weaker-than-expected ISM report comes on the heels of a slightly downbeat U.S. jobs report for August, which was released last Friday that showed that non-farm employment in the U.S. grew by lower-than-expected 151,000 during August. Expectations were for nonfarm payrolls to rise by 175,000 to 185,000, with a jobless rate of 4.8%.
The U.S. non-manufacturing purchasing managers index reading for August was 51.4 versus July’s 55.5. A reading of 55.5 was expected for August. That was the lowest reading in six years. Other indicators in the ISM report also missed to the downside of market expectations. The ISM data put very strong downside price pressure on the U.S. dollar index, which in turn gave support to the precious metals markets.
This recent U.S. economic data plays right into the hands of the U.S. monetary policy doves, who do not want to see the Federal Reserve raise interest rates any time soon. Such a scenario would also be bullish for the precious metals markets.
Market watchers are now awaiting Thursday’s meeting of the European Central Bank. The ECB will issue fresh economic forecasts and assessments at this meeting. The consensus for this meeting is that the ECB will make no significant moves on EU monetary policy.
While Western main stream media talk of an economic recovery in the US as unemployment falls, some forty million people in the US are living in poverty, surviving on food stamps… and this number is growing daily. And, as infrastructure gradually deteriorates, money that could be used to rebuild the infrastructure is squandered on military intervention, war and the spreading of mayhem.
Meanwhile, as countries such as China and India focus on creating a productive economy, the Western world influenced by the US focuses on money supply, forex futures, interest rates, equity and bond markets.
Currently, yields on US 10-year government bonds are at their lowest level in American history, British bonds were at a 322 year old low three weeks ago, Japanese bonds are at a record low, German bonds are a record low and so are Italian bonds. The real return on most government bonds today is negative, even in a low inflationary environment. And, bonds from emerging markets that offer a slightly higher return are not worth buying due to the currency risks involved.
The total value of all government and corporate bonds in the world as of July 2016 was US$87.69 trillion. The value of negative-yielding bonds swelled to $13.4trillion by the middle of August, as negative interest rates and central bank bond buying rippled through the debt market.
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