US Jobs Report: Rocket Fuel For Gold

On Tuesday of last week, I told the Western gold community, “This is a time for investors to position themselves for the next wave higher…and for gold stocks that wave may just begin on Friday morning!”

This is the stunning GDX daily chart.

GDX soared more than eleven percent, just on Friday!  The US jobs report was essentially a wipeout.  Only 38,000 jobs were created in April, and the labour department issued downward revisions for previous months.

I have repeatedly warned the Western gold community not to try to “top call” this market.  Investors who sold core positions into the lows of 2015 should just rebuy those positions.

Measured against gold bullion, gold stocks are ending a twenty year down cycle.  Many gold stocks can rise hundreds of percent and still be in a buying area for value-oriented fund managers. Also, the US central bank has indicated that there is a rough eight year business cycle in the American economy.  The economy tends to peak about six months after the stock market peaks.

This monthly Dow Index chart shows a stock market and business cycle peak in 2007/2008…and a potentially similar peak in play now.

Friday’s report shows a meltdown in American jobs creation is a strong indication that the economic up cycle has either ended, or is near an end.

Most analysts in both the mainstream and gold communities are focused on the potential path the Fed may follow with interest rates, in response to the horrific jobs report.  I think they are making a serious error.

Gold is a safe haven.  Institutional investors are engaging in a “risk-off” play when they buy gold.  They are leaving risk markets like the stock market and the US dollar, and buying the yen and gold, which are safe havens from risk.

This is the US dollar versus Japanese yen hourly bars chart. 

As the US business cycle peaks and rolls over, top institutional money managers are not buying gold because “rates might not rise”, but because they are rushing away from the incredible risk in markets associated with the peaking business cycle, like the stock market.  

I’ve predicted that in the coming years the Japanese government may ruin the yen’s role as a safe haven.  That would create gargantuan new demand for gold during institutional panics in the world’s major stock markets.

Powerful institutional buying has brought the SPDR fund tonnage close to the 900 tonnes “marker”. 

I think that 900 tonnes could be reached this week, as money managers become increasingly concerned about managing their exposure to a US business cycle downturn.

In the second half of this year, can the SPDR fund reach the psychologically important 1000 tons number?  The simple answer is:  Yes.

This daily gold chart suggests that gold may consolidate for a few days, and then another powerful wave to the upside is likely!

Rather than spending time trying to figure out whether Janet Yellen will raise rates or not, analysts should focus on what will happen to the teetering US stock market if she does hike. 

Horrifically, the institutional surge into the yen and gold safe havens in the first five months of 2016 may only be an appetizer of what lies ahead.  Here’s why:

Yellen’s mandate is to promote steady inflation and economic growth in the private economy.  It’s not to promote government borrowing with low rates that destroy bank profit margins.  Her mandate is not to force elderly savers to spend their pension money buying products they can’t afford and don’t need.

The US government has refused to shrink itself, even with the Fed buying its debt with QE, and keeping rates ridiculously low.  The selfish actions of the US government are making Janet’s policy tools more and more ineffective in the private economy. 

I’m adamant that Janet can hike rates, crash the stock market, and pin the US government in a corner, while boosting the economic status of Main Street citizens.  Banks want to lend to small business rather than to stock market buyback “fiends”, but they need to make a profit on those loans.

The Western gold community does not need to fear rate hikes from Janet, but as the US business cycle peaks and rolls over, stock market investors should be very afraid.  

Also, let me be clear that while gold should now consolidate Friday’s gains over the next couple of days, the consolidation may only last for the next few hours!    

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