May Blog Archives 2014

Gold prices closed near 4-month lows on technical selling. U.S. stocks rose on upbeat housing data and ignored stalled GDP data. Gold last traded at $1,256 an ounce. Silver at $19.04 an ounce.

Today Americans received confirmation on something many already instinctively realized: the US economy is much weaker than the Federal Reserve and the Obama administration would have us believe.

Our economy contracted for the first time in three years from January through March.

Gross Domestic Product (GDP) fell at a 1 percent annualized rate in the first quarter, a bigger decline than projected, after a previously reported 0.1 percent gain.

The last time the economy shrank was in the same three months of 2011. The median forecast of economists foresaw a 0.5 percent drop, so the economy was significantly weaker than experts thought it would be.

The Federal Reserve continues to blame the contraction on bad weather during the winter and is assuring everyone the economy was much healthier in the 2nd quarter.

But critics of the Fed are skeptical that bad weather can account for such a sharp decline in economic output. After all in the 4th quarter of 2013, GDP reportedly grew by 2.6%. A move from +2.6% to -1.0% over such a short period of time almost certainly cannot be blamed solely on snow and cold weather. It's not as if blizzards and cold snaps are unprecedented in the January to March time frame. Besides, there were some areas of the country that were not impacted by the weather.

Excuses involving the weather call into question the credibility of the Fed and the administration. It will be interesting to see if the rosy forecasts for a sharp rebound in the 2nd quarter pan out.

The stock market shrugged off this report. This sets up a possible nasty surprise down the road if the rosy projections do not materialize with the improved weather in the 2nd quarter. Even if the economy does not contract in the quarter, if GDP figures disappoint, there could be a backlash on Wall Street.

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Gold prices end lower after Ukraine's election results, technical selling and equity gains. U.S. stocks close higher on better-than-expected economic reports. Gold last traded at $1,265 an ounce. Silver at $19.07 an ounce.

A series of economic reports in the US have resulted in a terrific buying opportunity in gold. Gold is now at a three and a half month low. And the fiscal and monetary fundamentals that make gold so vital to the future of every investor have not changed a bit.

The acknowledged national debt is still $17 trillion and growing. The monetary policy that has been in place for several years is still essentially in place. It is true that the Fed is in the process of unwinding its Quantitative Easing bond-buying program, but interest rates continue to be negative in real terms and it is politically doubtful this will change anytime in the foreseeable future.

So, what prompted the correction in gold that created this terrific buying opportunity?

1. Home prices continued their rise in the month of March.

2. US durable goods orders rose during April.

3. US consumer confidence rose in May.

As we have often pointed out, a closer look between the lines reveals just why the markets have overreacted to these reports, adding to the attractiveness of this buying opportunity.

The S&P/Case-Shiller Index of property values increased 12.4 percent from March 2013. But, that was the smallest 12-month gain since last July, a possible sign that still-tight lending standards for some Americans and a rise in mortgage rates since mid-2013 have slowed demand, limiting the ability of sellers to keep asking even higher prices. In other words, a positive trend in the real estate market is anything but assured and economists generally agree the US economy cannot truly enter a recovery without a robust real estate market.

While durable goods orders did unexpectedly spike in April, a drop in a measure of business capital spending plans could temper expectations for a sharp rebound in economic growth. Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, fell 1.2 percent. Economists had expected orders for these so-called core capital goods to rise 0.2 percent. This aspect of the durable goods report should temper expectations for economic growth over the next few months.

While consumer confidence rose in May, it was only a slight rise and it came on the heels of a sharp drop the previous month. The Conference Board said its Consumer Confidence Index rose to 83, up from 81.7 in April. But it had previously fallen in April from 83.9 in March, so Consumer Confidence is still below where it was just two months ago.

The truth behind these economic reports does not warrant a sharp drop in the price of gold or a sharp rise in stocks. Nevertheless, that's just what we've seen. Because of that--and because the prevailing monetary and fiscal climate is unchanged--this should be viewed as an opportunity to accumulate gold at bargain prices.

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Gold prices end higher after India eases import rules. U.S. stocks higher as investors shrug off soft economic data. Gold last traded at $1,295 an ounce. Silver at $19.52 an ounce.

One of the biggest, yet most confusing factors for investors going forward is the health of the US economy.

We have the Federal Reserve, the Obama administration and the so-called "mainstream" media touting an economic "recovery" but we repeatedly see economic statistics which don't reflect a recovering economy at all.

This has created a great deal of uncertainty, as reflected by the latest survey of consumers by Bloomberg business news.

Americans’ expectations for the economy have deteriorated to a seven-month low during May, a sign that the economic rebound may be held back by still-cautious consumers.

According to the Bloomberg Consumer Comfort Index, an expectations gauge that tracks where the economy is heading, declined to 42.5 in May from 48 in the month prior. The share of respondents who said the economy was getting worse climbed to the highest level this year.

Elevated prices at grocery stores and gas stations are probably souring Americans’ views of the economy but persistent softness in the job market is a factor as well. And, once again, we have fresh evidence of that.

More Americans than projected filed applications for unemployment benefits last week. Jobless claims increased by 28,000 to 326,000, in the week ended May 17, after 298,000 filings a week earlier. Economists had forecast a rise to 310,000.

This combination of rising inflation and persistent unemployment is characteristic of a phenomenon known as "stagflation." It is literally a perfect storm scenario that makes it exceedingly difficult for central bankers to convince people they are taking appropriate steps to boost the economy. Stagflation was also associated with the period in the 1970s when the S&P 500 fell 45% and the price of gold tripled.

In other news, there could be a new sign of trouble brewing in the banking sector.

Billionaire investor George Soros has sold his shares of three major American banks, including Bank of America, JP Morgan and Citigroup. It remains to be seen why Soros made this move and what he sees that would prompt him to exit that sector, but it is certainly worth noting.

Finally, India may be re-emerging as the world's largest consumer of gold. Last year, China surpassed India for the first time as a source of gold demand, partially because changes to laws in India placed restrictions on gold imports for the first time. The Reserve Bank of India has now liberalized gold import norms to allow more sources of gold imports into the country.

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Gold prices end slightly higher as traders await speeches from various Fed officials later this week. U.S. stocks fall after disappointing earnings from retailers. Gold last traded at $1,294 an ounce. Silver at $19.40 an ounce.

A combination of developments regarding the US dollar, a new economic report and an emerging geopolitical factor make up today's news.

In the past two weeks we have mentioned that China and Russia have been working together to erode the US dollar's supremacy as a medium of exchange. Now they have taken concrete steps toward that end.

One of Russia's largest banks, VTB, has signed a deal with Bank of China to pay each other in domestic currencies, bypassing the need for US Dollars for "investment banking, inter-bank lending, trade finance and capital-markets transactions."

The replacement of the dollar by two major world powers in international transactions inevitably contributes to a decline in its value. Since gold has historically provided a hedge against a falling dollar, it is an excellent tool for preparing your wealth for the fallout.

Speaking of the dollar, economist John Williams of Shadow Government Statistics, has a dire prediction:

Williams says, “I don’t see what will save it at this point. . . . Now we are to the point that the dollar has been ignored for years. The federal deficit has been ignored for years. . . . That’s what we are on the brink of disaster with, and that is what has to be addressed now, and that’s not happening.” Williams also contends, “The way I see it, the dollar could go to zero in terms of its purchasing power. You don’t want to have your assets in U.S. dollars.”

How are we going to get there? Look no further that the dismal first quarter gross domestic product (GDP) numbers that officially only eked out .1% growth. This is one of the reasons why Williams thinks a “renewed broad economic downturn continues to unfold.” Williams goes on to say, “We’re turning down anew. The first quarter should be revised to negative territory, and I believe the second quarter will be reported negative as well. That will happen by July 30 when you have the annual revisions to the GDP. In reality, the economy is much weaker than that . . . . Generally, when you adjust for inflation and you use too low of a rate for inflation, that overstates the economic growth.”

Williams says the government rigs the economic numbers, and it gives a false impression of recovery.

The latest evidence of the downturn to which Williams refers may have come to us with the latest reports on profits from the retail industry.

Quarterly earnings from a slew of companies showed there is still a lot of uncertainty heading into the crucial second half, crushing sentiment and sending shares sharply lower.

Retailers from T.J. Maxx parent, TJX Cos. to No. 1 office-supplier Staples Inc. missed earnings expectations.

The 61 retailers, that have reported for the quarter, missed estimates by an average of 2.6%, well below the long-term average of a 3% beat, according to Retail Metrics President Ken Perkins. First-quarter average profit is estimated to be down 2.3%, versus the 7.7% quarterly average profit growth of the past 15 years.

The crux of the problem for retailers is the majority of Americans are not making enough money to grow their expenditures on discretionary purchases and are either keeping them flat or cutting back.

In other words, consumer spending is not in a position to jumpstart what can only be described as an anemic economic recovery.

Instead of an economic recovery, the world economy could be getting worse--much worse in fact. That's the message from one of the most popular books on Amazon these days: The Death of Money: The Coming Collapse of the International Monetary System, by James Rickards. Rickards is Senior Managing Director at Tangent Capital Partners LLC, a merchant bank based in New York City, and is Senior Managing Director for Market Intelligence at Omnis, Inc., a technical, professional and scientific consulting firm located in McLean, VA.

In the book, Rickards explains how an executive order raising the gold price to $7,000 will be the only way to break a deflationary downward spiral in the US if money printing reaches its limits and the Fed pulls back, as is happening this year.

According to Rickards, "The purpose would not be to enrich gold holders but to reset general price levels… this kind of dollar devaluation against gold would quickly be reflected in higher dollar prices for everything else. The world of $7,000 gold is also the world of $400 per-barrel oil and $100 per-ounce silver. Deflation’s back can be broken when the dollar is devalued against gold, as occurred in 1933 when the United States revalued gold from $20.67 per ounce to $35 per ounce, a 41 per cent dollar devaluation."

His conclusion is that, "if the Unites States faces severe deflation again, the antidote of dollar devaluation against gold will be the same because there is no other solution when printing money fails."

One important thing to note about Jim Rickards is that he’s a respected money manager, not a diehard believer in gold.

Finally, there is a new geopolitical factor possibly poised to confront the financial markets. The United States has increased the number of Marines and aircraft stationed in Sicily who could be called upon to evacuate Americans from the U.S. embassy in Tripoli as unrest in Libya grows. The escalating violence in Libya has contributed to higher oil prices recently.

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The fear of inflation is creeping back into America's investment lexicon.

Those fears are now appearing in sectors that couldn't be more divergent: coffee and energy.

During 2013, many forecasts called for reduced gasoline demand in 2014. That hasn't occurred.

As the summer driving season nears, retail gas remains stubbornly lodged near $4 per gallon. According to the Energy Information Administration, gas prices rose for 12 straight weeks through late April, and were 20 cents a gallon higher than the same point last year.

The EIA expects average gas prices to rise by 3 cents during the June - August period.

Oil rose above $110 a barrel today on renewed concerns over Libya's oil output following some of the worst violence in Tripoli since the 2011 war against Muammar Gaddafi. Libya's output has fallen to about 200,000 barrels per day (bpd) from 300,000 bpd earlier last week, far below the 1.4 million bpd produced last year.

The conflict in Ukraine also added momentum to the price rise as U.S. President Barack Obama and French President Francois Hollande agreed Russia faces significant further costs if it continues its "provocative and destabilizing behavior".

"Finding additional support from the Ukraine conflict, the [oil] price is likely to remain at its current high level and may even climb further," Commerzbank said.

Energy is an insidious component of the cost of living. When energy prices rise, they tend to produce cost-push inflation in other sectors of the economy, since energy costs are involved at some level in just about every economic activity.

In an unrelated development, coffee prices are also rising due to a fungus impacting the coffee crop in Central America. At issue is a fungus called coffee rust that has caused more than $1 billion in damage across Latin American region. The fungus is especially deadly to Arabica coffee, the bean that makes up most high-end, specialty coffees.

Already, the rust is affecting the price of some coffees in the United States and analysts estimate that production could be down anywhere from 15 percent to 40 percent in coming years, resulting in even higher prices going forward.

Gold has historically been an excellent hedge against high inflation. Since we are just beginning to see the signs of inflation appear in the economy, investors should take advantage of this situation by acquiring gold at prices that may well seem low compared once inflation really kicks in.

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Metals prices held steady from market open to close. Stocks stop losses but end week lower. Gold last traded at $1,292 an ounce. Silver at $19.35 an ounce

News from around the world is impacting the financial markets as we head into the weekend.

Here in the US, there were two economic reports with implications for investors.

Consumer confidence unexpectedly fell this month showing Americans are being shaken by rising grocery bills and elevated fuel costs.

The Thomson Reuters/University of Michigan preliminary sentiment index decreased to 81.8 from 84.1 in April. The median projection in an independent survey of economists called for a gain to 84.5. So, instead of rising, consumer confidence fell sharply – and it fell due to inflation fears.

Food prices have risen and the cost of gasoline has held near its highest level of the year, making buyers less secure in their finances.

This places gold investments in a good position to benefit investors since gold has historically performed well as a hedge against rising inflation.

There was also a report on Housing starts here in the US. On face value it looked quite optimistic, but the details indicate otherwise.

A monthly report from the U.S. Census Bureau showed total housing starts up 13 percent month to month, but that was driven by a 43 percent monthly jump in buildings with five or more units. Single-family housing starts rose just under 1 percent for the month.

This is not a sign of prosperity given that it indicates more and more Americans are having to settle for renting, as opposed to home ownership.

The home ownership rate is down to 64.8 percent versus the 2004 peak of 69.2 percent, and the 50-year average of 65.4 percent.

Single-family home construction so far this year is well below last year. Starts were up just 2 percent from January through April in 2014, while they were up nearly 26 percent during the same time period in 2013.

At this point, we should also add an addendum to yesterday's CPI and Wednesday's PPI reports indicating resurging inflation.

As part of inflation's comeback, food prices have been climbing for four months in a row--especially meat prices.

According to the latest inflation data from the Labor Department, meat prices spiked by almost 3% in April - the most since November 2003. This is also the 2nd biggest price spike in 34 years!

There are economic troubles brewing in China as well.

Statistics released this week indicate China's economic slowdown deepened with unexpected decelerations in industrial-output and investment growth and a decline in home sales.

Additionally, Chinese banks had their biggest quarterly increase in bad loans since 2005 as the economic slowdown in China causes defaults to rise.

Nonperforming loans rose by 54 billion yuan ($8.7 billion) in the three months through March to 646.1 billion yuan, the highest level since September 2008.

This is a potential threat to the world economy as China is so vital both on the supply and demand sides in many sectors.

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5.15.14 - More U.S. Economic Data Shows Signs Of Rising Inflation

Gold prices lower on stronger-than-expected U.S. economic data. U.S. stocks fall sharply, Dow has worst decline in 5 weeks. Gold last traded at $1,293 an ounce. Silver at $19.48 an ounce.

Two government-produced statistics were released today that have ominous implications for the financial markets.

First, the Labor Department released the Consumer Price Index (CPI), a measure of the cost of living at the retail level. U.S. consumer prices recorded their largest increase in 10 months during April. The CPI increased 0.3 percent last month as food prices rose for a fourth consecutive month and the cost of gasoline surged. That was the biggest rise since June last year and added to March's 0.2 percent rise.

Stripping out food and energy prices, the so-called core CPI rose 0.2 percent. Economists had forecast the core CPI rising only 0.1 percent.

The Labor Department report released yesterday (the PPI, or Producer Price Index) showed a strong rise in producer prices in April, with increases spread from goods to services, leaving economists to anticipate gains in consumer inflation in the months ahead.

In other words, this could be the start of a trend toward rising inflation.

Meanwhile, U.S. industrial output fell at its fastest rate in more than 1-1/2 years in April, as factory production slumped, tempering hopes for a big jump in economic growth after a winter slowdown.

Production at the nation's mines, factories and utilities slipped 0.6 percent last month, the largest decline since August 2012.

Economists had expected output to hold steady.

With output slipping, U.S. industry operated at only 78.6 percent of its capacity, down from 79.3 percent in March.

This combination of rising inflation with a slowing economy could be indicative of "stagflation," a particularly tough economic problem which would leave the Federal Reserve more perplexed than ever as to monetary policy options.

As worrisome as these government reports appear to be, they're probably vastly understating conditions.

According to an influential Wall Street advisor, the government figures are an outright fraud.

David John Marotta calculates the actual unemployment rate of those not working at a sky-high 37.2 percent, not the 6.7 percent advertised by the Fed, and the Misery Index at over 14, not the 8 claimed by the government.

Marotta said that the government isn't being honest in how it calculates the numbers on those out of the workforce or inflation; the two numbers used to get the Misery Index figure.

“The unemployment rate only describes people who are currently working or looking for work,” he said. That leaves out a ton more. Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2 percent. This number obviously includes some people who are not or never plan to seek employment. But it does describe how many people are not able to, do not want to or cannot find a way to work.

“Today, the Misery Index would be 7.54 using official numbers,” he says. But if calculations tabulating the full national unemployment including discouraged workers, which is 10.2 percent, and the historical method of calculating inflation, which is now 4.5 percent, "the current misery index is closer to 14.7, worse even than during the Ford administration.”

It's worth mentioning that during the days of the Ford and Carter presidencies, the price of gold was increasing rapidly as investors sought security and safety from the stagflationary conditions of the day.

Speaking of gold, one market expert, Michael Curran of Beacon Securities in Toronto, Canada believes gold will end the year in the $1400-$1500 range, some $100 to $200 per ounce higher than today.

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Gold prices higher, silver prices jump more than 1% after a report stated that demand for the metal rose to a record last year. DOW ends 5-day winning streak after a larger-than-expected jump in wholesale prices. Gold last traded at $1,305 an ounce. Silver at $19.78 an ounce.

For the past several weeks, we've seen signs of higher inflation creeping back into the economy. Today we have been provided with the clearest proof to date of accelerating inflation.

U.S. producer prices posted their largest increase in 1-1/2 years in April as the cost of food and trade services surged.

The Labor Department said this morning that its Producer Price Index rose 0.6%, the biggest gain since September 2012. Producer prices increased 0.5% in March, suggesting a trend.

The wholesale inflation report came as a surprise. A consensus forecast from economists had come in at just 0.2%.

Last month, food prices surged 2.7%, the biggest rise since February 2011. That followed a 1.1% increase in March and marked the fourth consecutive month of gains in food prices, leaving Americans confronting higher prices at the supermarket.

Meats recorded their largest rise since October 2003.

Producer prices excluding volatile food and energy costs increased 0.5 percent in April after the prior month's 0.6 percent gain.

The evidence of increasing inflation comes as the overall economy--especially the employment market--is anything but robust. This is prompting some analysts to fear the onset of "stagflation;" a combination of a rising cost of living and a stagnant economy with a weak labor market. The same conditions were present in the 1970s when the S&P 500 reversed course and fell 45% and the price of gold tripled.

Tomorrow, the Labor Department's measure of inflation at the retail level, the Consumer Price Index (CPI) will be released.

Gold rose overnight past the $1300 per ounce level as European stocks and the US dollar both came under pressure from the yet-to-be-seen further loosening of monetary policy by the European Central Bank (ECB). The entire precious metal complex was buoyed by reports out of South Africa, the world's largest producer of platinum, of continued labor strife that could disrupt production as it appears to be escalating into violence.

Last summer, one of the big worries in the financial markets was the economic crisis in the Eurozone. Many assume the Eurozone crisis is over, but that may not be the case.

Barry Eichengreen, an economics and political science professor at the University of California, Berkeley, points out that many EU countries still carry enormous public debt, the EU banking union is deeply flawed and the EU faces difficulty increasing exports. He calls the EU's outlook "dismal."

According to the world's largest bond fund manager, Pimco, the outlook for the financial markets in the US isn't much better. In a report released Tuesday, Pimco is forecasting an end to bull markets in financial assets that could last 3-5 years. The firm forecasts only 3 percent returns for bonds and 5 percent returns for stocks over the next three to five years.

The crisis in Ukraine isn't over either and we can count on periodic disruptions in the financial markets, particularly in Europe, as a result. Russian Foreign Minister Sergei Lavrov said this morning that Ukraine was "as close to civil war as you can get."

Rebels yesterday killed seven Ukrainian soldiers and wounded eight others during an ambush in a breakaway eastern region. US satellite intelligence indicates that, despite reports to the contrary, Russian troops have not pulled back from their border with Ukraine.

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Gold prices settled slightly lower after a disappointing retail sales report. U.S. stocks build on gains from yesterday as S&P 500 and DJIA close at record levels. Gold last traded at $1,294 an ounce. Silver at $19.55 an ounce.

The US stock market is performing in ways not supported by underlying economic fundamentals and that should make investors nervous.

The S&P 500 rose above the 1900 level earlier today for the first time ever. That might be cause for celebration in some circles, but we must remember that every heavy night of partying is paid for with a hangover.

The current run in stocks is over 5 years old - well past the average length of uninterrupted bull markets - and investors must be prepared for the inevitable reversal.

Time is not the only factor working against the stock market. Economic factors are not supportive of a continuing bull market. It appears the stock market is being propped up by the artificial stimulus of the Fed, which even Janet Yellen knows cannot continue forever.

The latest worrisome data on the economy came today in the form of a report on retail sales.

U.S. retail sales barely rose in April and a gauge of consumer spending slipped, which could torpedo hopes of a sharp acceleration in economic growth in the second quarter.

The Commerce Department said on Tuesday retail sales edged up 0.1 percent last month, held back by declines in receipts at furniture, electronic and appliance stores, restaurants and bars, and online retailers.

Economists had forecast sales advancing 0.4 percent. Retail sales account for a third of consumer spending.

So-called core sales - which strip out automobiles, gasoline, building materials and food services and correspond most closely with the consumer spending component of gross domestic product - fell 0.1 percent in April.

Retail sales were restrained by a 2.3 percent drop in receipts at electronics and appliance stores. Sales at furniture stores fell 0.6 percent, while receipts at food services and drinking places dropped 0.9 percent.

Sales at non-store retailers, which include online sales, fell 0.9 percent.

The housing market is another faltering economic sector. Higher costs and rising interest rates may signal a retreat of this major economic driver, raising fears it once again may drag down the rest of the economy.

New and existing home sales in March were down by 13.5 percent from their peak nearly a year ago.

Economists say the nearly 1 percentage point jump in 30-year mortgage rates spurred by Federal Reserve policy over the past year has combined with fast-rising home prices to make housing less affordable for the average consumer, who continues to be pinched by limited wage gains and impaired access to credit. Moreover, first-time home-buyers, a group that plays a pivotal role in propelling housing growth, have been in short supply because of high unemployment rates and bloated student loan debts among the millennial generation.

Hopes that housing would regain momentum this year amid a broader economic recovery have been disappointed. Reports show the housing slump continued, and even deepened, during the normally busy Spring.

There could be further economic trouble on the horizon thanks to the federal government, specifically the Environmental Protection Agency. At least that is what the coal industry is saying.

The Environmental Protection Agency’s carbon dioxide limits for new power plants will devastate the economy by leading to a steep surge in energy prices, the coal industry and its allies are warning.

The American Coal Council said the new standards would essentially take coal off the market as a power source for new plants.

Separately, the Chamber of Commerce said the rules would have an effect well beyond the coal industry by leading to job losses in the broader economy.

The new rules, which the EPA plans to roll out in January 2015, are a key part of President Obama’s climate change initiative and are intended to reduce global warming.

Speaking of higher prices, many Americans realize the cost of living is in fact rising substantially, despite the fact it isn't reflected in official government statistics.

The rising cost of living is visible in items like food, energy, housing and, of course, health care. It’s also in less visible items, such as contracts to service air conditioners, heating systems and motor vehicles. Not to mention in income taxes, property taxes, water bills, etc.

The market basket of goods and services used in government inflation surveys does not adequately capture buying patterns.

Finally, in Europe, banks are undergoing one of those so-called "stress tests" and even before the test concludes, things don't seem to be going well.

European banks are being urged to boost their ability to withstand losses before the conclusion of the stress test that is drawing criticism for its design.

The European Central Bank is leading the charge to prove the region’s banks are robust before it takes over financial supervision in November, and has squeezed an unprecedented Asset Quality Review and a stress-test into its year of preparation. That pressure has led to some disquiet about the compromises needed to get the job done on time.

Some banks may have difficulty passing the adverse stress-test scenario, which was unveiled by the European Banking Authority and ECB last month. The model simulates turmoil that starts in a global bond-market rout.

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Gold prices up on Ukrainian tensions and fears of spreading global deflation. Stock markets close on records. Gold last traded at $1,296 an ounce. Silver at $19.53 an ounce.

As we start the week, the price of gold is rising in response to events in Ukraine.

Gold's rally began picking up steam overnight after prices broke through chart resistance just below $1,300 an ounce, with a weakening dollar contributing to support for the yellow metal.

Gold charged through the 200 day moving average at $1,298.30 per ounce, and then buying accelerated. Momentum increased strongly as the metal broke out of the $10 range it had stuck to in the previous two sessions.

Pro-Russian rebels declared a landslide victory in Sunday's referendum in Ukraine's Donetsk and Luhansk regions. The Ukrainian authorities dismissed the vote as a farce and the European Union criticized the referendum.

The vote was immediately hailed as a triumph by Russian state media and declared illegitimate by the US State Department.

With its options to keep the country together narrowing, the Ukrainian government is under increasing pressure from Moscow to create a new federal state structure that would give regions control over economic, foreign and cultural policy. This would likely cripple Ukraine.

Geopolitical tension is not the only factor to impact Europe.

The latest Bloomberg Markets Global Investor Poll, shows concern about the threat of deflation in Europe.

About three-quarters of poll respondents are concerned about deflation in the euro zone.

The Bloomberg poll also showed investors are nervous about Asia’s two largest economies. There’s growing doubt about Japan’s turnaround. And poll participants say China’s economy is in its worst shape since September 2012.

Speaking of Asia, there are some simmering geopolitical issues in the region which could also impact the economic and financial markets.

There is an ongoing political crisis in Thailand, but the most worrying questions center around various relations with China.

Protesters rallied in Vietnam on Sunday against the set up of a Chinese oil rig in the South China Sea.

China has been aggressive in laying claim to mineral deposits and island chains in the South China Sea for years. Vietnam and the Philippines in particular are at the pointy end of China's spear in these conflicts which could conceivably impact financial markets going forward.

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Gold prices end lower as bulls struggle to gain momentum. U.S. stocks end choppy session higher, Dow hits record close. Gold last traded at $1,287 an ounce. Silver at $19.19 an ounce.

Overseas news is dominating the headlines today as we head into the weekend.

European shares were down across the board overnight as tensions are ripe to heat up again in Ukraine.

There will be a referendum of pro-Russian Ukrainians this weekend, despite Russian President Vladimir Putin calling for it to be postponed. This is almost sure to raise tensions.

Putin has also ramped up his inflammatory rhetoric.

Putin visited the Crimean city of Sevastopol on Friday to celebrate Victory Day, which is a Russian celebration of victory in World War II. During the visit, Putin said Russia had become stronger with the addition of Crimea.

"I am sure that 2014 will go into the annals of our whole country as the year when the nations living here firmly decided to be together with Russia, affirming fidelity to the historical truth and the memory of our ancestors," Putin said in a brief speech.

That certainly doesn't bode well for Ukraine.

Putin's speech in Crimea came as Ukrainian interior minister, Arsen Avakov, said security forces had killed around 20 pro-Russian rebels in Mariupol, in what looks to be a significant move by Kiev in an attempt to end the insurgency in the east of the country.

Russia's actions have resulted in economic sanctions from the US and Europe, but other nations are not going along with the sanctions. In fact, some are using them as an excuse to establish closer ties to Russia.

Top officials from China and Russia met yesterday in Beijing to prepare for a visit by Putin to China next week.

China is currently Russia’s fourth largest source of foreign direct investment.

The two countries appear to be taking direct aim at the US dollar.

“Financial cooperation between China and Russia is growing as local currency settlement in two-way trade increases and consultations on a package of currency swaps are on-going,” said Chinese Vice Premier Zhang Gaoli.

This would remove the necessity for transactions to be settled in two foreign exchange trades via the US dollar.

Beijing is keen on substituting the US dollar with the yuan in all of China’s trade with other countries. The Chinese currency now trades directly with the Japanese yen, the Australian dollar, the Brazilian real, the EU’s euro, the New Zealand dollar and many other currencies.

The news out of China is not all good for the Chinese though. There are growing fears about a wave of bad debt in China and no one trusts the Chinese government figures, so no one really knows how severe the problem might turn out to be.

The combination of a massive, five-year expansion in credit, with the recent economic slowdown in China, has many worried about China’s bad-loan levels.

China’s reported nonperforming-loan ratio is only 1 percent.

The real situation is probably far scarier, says a new report released May 8 by consultancy Oxford Economics. More likely, China’s bad-debt ratio is somewhere between 10 percent and 20 percent, amounting to 6 trillion to 12 trillion yuan ($1 trillion to $1.9 trillion).

If indeed China’s bad-debt ratio is now in the 10 percent to 20 percent range, that has alarming ramifications. Non-performing loans on such a scale could be the trigger for a serious banking crisis in China, with major regional and global economic implications.

Back here in the United States, U.S. employers advertised slightly fewer jobs and slowed hiring a bit in March. The Labor Department reported today that employers posted 4 million jobs in March, down 2.7 percent from February. Total hiring, meanwhile, dipped 1.6 percent to 4.63 million in March. That's below the 5 million monthly hires typical for a healthy job market.

On the stock market front, the American Association of Individual Investors survey for the week ending May 7th showed 28.3% ‘bulls,’ 28.7% ‘bears’ and a whopping 43% of respondants ‘neutral.’ It’s the highest level of neutrality in more than 10 years.

History suggests a sharp move follows peaks in neutral sentiment. However, historical analysis doesn’t give a clear sign as to which direction that sharp move will take. Given the current stock market has gone well over 5 years without a bear episode, which is historically very long, prudent investors should be on the lookout for a fall.

Great opportunities exist in the gold market, at least according to one of this generation's most esteemed investors. Famed commodity investor Jim Rogers says he sees a great buying opportunity developing for gold in the next year.

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Gold prices ended lower on better-than-expected jobless claims. U.S. stocks ended volatile session with modest losses. Gold last traded at $1,287 an ounce. Silver at $19.14 an ounce.

Central bankers are once again in the news today.

In Europe, the European Central Bank (ECB) announced today that it is poised to cut interest rates or adopt radical measures next month to stimulate the European economy.

Unemployment remains stuck just below its record level of 12%, zapping consumer demand. The euro is trading near its recent peak above $1.39, making life harder for European exporters and exerting more downward pressure on prices as imports become cheaper. So, naturally, the ECB is going to undermine its value, which seems to be the standard practice for central banks. This will result in higher gold prices in terms of euros and higher demand for gold as well.

To make matters worse, there are early signs that the meltdown in Russia's economy is starting to hurt some of Europe's big companies. Any escalation in the conflict in eastern Ukraine could hit business and household confidence.

That crisis contains significant risks for Europe, and the region would feel the impact more than other parts of the world if it escalates.

When it comes to geopolitics, don't listen to what world leaders say, watch what they do. Amidst all the talk, Putin oversaw a military exercise involving Russia's nuclear forces and a Russian aircraft carrier task group sailed into the English Channel.

The other central banker in the news is US Fed chair Janet Yellen, who has been spending a lot of time on Capitol Hill lately.

Two statements by Yellen are cause for concern.

Responding to a question from socialist Senator Bernie Sanders, Yellen said she didn't know whether America was still a capitalist democracy or an oligarchy in which economic and political power rests with a billionaire class.

Additionally, citing the Congressional Budget Office's long-term budget projections, she told the Joint Economic Committee of Congress that under current policies the federal government’s deficits “will rise to unsustainable levels.”

What she meant by "unsustainable" was left unsaid, as were the economic and political consequences.

In the 10-year budget projections it released in April, the CBO estimated the federal government will run $7.618 trillion in deficits from 2015 through 2024. At the same time, the CBO projected the federal government’s debt held by the public would rise from $11.983 trillion at the end of fiscal 2013 to $20.947 trillion by the end of 2024.

The total debt of the federal government at the end of fiscal 2013--including both the debt held by the public and the intragovernmental debt--was $16.719 trillion. The CBO estimates by 2024, the total debt of the federal government will be $27.159 trillion—of which $20.947 trillion will be debt held by the public.

If that projection holds up, the federal debt held by the public in 2024 would be more than four times the $5.035 trillion federal debt held by the public at the end of 2007.

Finally, a leading market prognosticator expressed worries this week about the possibility of a new, severe financial crisis.

Marc Faber, publisher of The Gloom, Boom & Doom Report, says he believes the 2008 financial crisis could be just a precursor to a more severe economic fallout on the horizon.

As a percentage of the advanced economies, total credit—including corporate, government and consumer debt—is 30 percent higher than it was in 2007, Faber said. "I don't think the economy is recovering at all. We have in the American economy a slowdown."

Under that scenario, "stocks in the advanced economies are basically fully priced," he argued, and said government bonds are expensive, given their low yields.

He also cited the crisis in Ukraine among the geopolitical problems that serve as a negative for the financial markets.

Faber said he expects the selling in the momentum names to spread to the broader U.S. stock market. He predicted a correction later this year.

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Gold prices end below $1,300 on news from Ukraine and Yellen testimony. U.S. stocks end mostly higher after choppy session. Gold last traded at $1,288 an ounce. Silver at $19.34 an ounce.

Fed Chair Janet Yellen delivered her first of two scheduled testimonies before Congress today. Her words do indeed have implications for investors, though those implications are probably not the ones she intends.

Yellen said the U.S. economy is still in need of lots of support given the "considerable slack" in the labor market, adding that the housing sector's weakness and geopolitical tensions also posed risks.

Yellen told the congressional committee a high rate of long-term unemployment and a slow rise in worker pay suggested plenty of room for further job gains:

“Many Americans who want a job are still unemployed. We’ve never really seen a situation where long term unemployment is so large a fraction of unemployment,” Yellen said.

Yellen then turned these factors around to justify the loose monetary policies that have already failed:

"A high degree of monetary accommodation remains warranted."

Yellen is correct about the factors that could derail the US economy and financial markets, but this does not mean easy money policies are the solution.

We have pointed out for months that, despite the statistics released by the federal government, the US employment situation is anything BUT healthy. Recent figures from the real estate market show that sector, key in a true economic recovery, is soft. And geopolitical risks abound, with Russia flexing its muscles around the world, especially on the border with Ukraine.

Yellen also indicated concerns over potentially risky investment behavior given the extended period of low interest rates. This is certainly ironic since the real impact of the loose monetary policy she is pushing is to create that very "behavior."

The economy really presents a quandary for policymakers these days. A slew of data show the Fed's easy monetary policy cannot overcome bad fiscal policy and underlying fundamentals to perk up the economy, especially given that those policies undermine the value of the dollar.

No nation ever devalued its currency to prosperity, but that is exactly what the Fed has been trying--and failing--to do.

Last week we learned the U.S. economy grew a meager 0.1% during the 1st quarter of 2014. As sad as it sounds, that estimate is actually starting to look overly optimistic.

Subsequent data have a number of economists wondering if the economy actually shrank during the first quarter. Here’s how Joseph LaVorgna, chief U.S. economist at Deutsche Bank, explained it in a note to clients: “Weaker data on construction spending, inventories and net exports imply that Q1 [gross domestic product] will now show a contraction.” LaVorgna now suspects the economy notched a -0.8 percent growth rate during the first three months of the year. Paul Ashworth, chief U.S. economist at Capital Economics, thinks economic growth fell 0.4 percent in the first quarter.

A lot of the pessimism is emanating from Tuesday’s trade deficit report as well, which showed that the U.S. trade deficit narrowed in March. This may sound good, but the government and economists were both expecting the deficit to tighten a lot more.

The trade data show the U.S. trade position is weakening across most industries. Buried in last week’s GDP data were some equally bad trade numbers. U.S. trade during the first quarter was actually a huge drag on the economy, subtracting 0.83 percentage points of growth. According to Alan Tonelson, a research fellow at the U.S. Business and Industry Council, that’s the biggest bite trade has taken out of growth since GDP data began getting tracked in 1947.

So apologists for irresponsible policies can blame economic weakness on the winter weather all they want, but there is clearly something more at work.

Over the long-term, the US economy has not been keeping up with population growth. Despite adding more than 8 million people to the working-age population since 2007, total employment has declined by half a million, according to an analysis by the Senate Budget Committee.

Before President Barack Obama took office, 259.7 million people were part of the working-age population (or between ages 16 and 65). Now, the number has risen to 267.7 million. However, in the same time period, total employment declined from 146.3 million to 145.7 million. In other words, 531,000 fewer people have jobs.

This statistic highlights an alarming trend that has embodied the president’s economic policies: more and more people are leaving the workforce entirely.

No where is this more apparent than in the younger workers who should be working the hardest and the longest hours to establish themselves.

The labor force participation rate in April 2014 for Americans ages 25 to 29 hit the lowest level recorded since 1982, when the Bureau of Labor Statistics (BLS) started tracking such data.

The labor force participation rate, which is the percentage of the civilian non-institutional population who participated in the labor force by either having a job during the month or actively seeking one, hit a record low in April 2014 of 79.8%.

In January 1982, when the data were first collected, the labor force participation rate for this group was 80.7%.

The actual number of Americans, ages 25 to 29, not participating in the labor force hit a record high in April 2014 as well, with 4,280,000 not working.

Those classified as not in the labor force means they are included in the civilian non-institutional population but did not have a job, and they did not actively seek one in the last four weeks.

When Barack Obama took office as president in January 2009, the number of Americans 25 to 29 not in the labor force was 3,769,000. Since then, that number has gone up by 511,000, an increase of 13.6%.

Is it any wonder that independent economists are predicting China will overtake the US as the world's top economy much sooner than previously expected? Although, not everyone agrees. House Minority Leader Nancy Pelosi said yesterday that the report from the International Comparison Program was incorrect and that she was confident China would not overtake the US.

Ms. Pelosi can stay in denial all she wants, but the rest of us don't have that luxury. The faltering of the US economy, as compared to foreign powers, has direct implications for the US dollar and investors have no choice but to protect themselves from the fallout with assets that can provide a long-term hedge against the fall of the dollar. Those assets are not US, dollar-denominated stocks and bonds. Gold, on the other hand, has historically served effectively in that role.

Another economic factor that has only recently appeared in the official statistics is inflation. One key component of overall inflation is wage inflation. A key measure that has input into wage inflation is productivity. The higher the productivity, the less wage inflation pressure.

U.S. non-farm productivity fell at its fastest pace in a year in the 1st quarter of 2014, leading to the largest gain in unit labor costs in more than a year. Productivity declined at a 1.7 percent annual rate. Economists had generally forecast productivity falling at a 1.0 percent rate.

All of the economic and geopolitical news seem to be compelling investors to buy gold. In fact, Kevin Kerr, Editor of ITrustGold, told Marketwatch.com today that not buying gold now is "somewhat foolish."

"Prospects for gold in 2014 have increased significantly in the face of fast moving Ukrainian developments,” says Kerr. Moreover, the downside risk, especially when gold’s decline last year is factored in, is “very limited" according to Kerr.

According to Kerr, other catalysts for gold gains include: The economic debacle and non-stop money-printing has “run amok,” and with resources getting tighter and tighter, there is going to be more “fiat (paper) currency sloshing around.”

So consumers will need more of that paper money to buy more real things. In other words, inflation.

Kerr says that while gold may be volatile in the short-term, its price will exceed $2000 per ounce sooner than most expect.

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Gold prices end slightly lower on a corrective pullback and a slumping U.S. dollar. U.S. stocks fall amid caution in global markets. Gold last traded at $1,308 an ounce. Silver at $19.65 an ounce.

World stock markets are declining today due to a variety of factors.

European stocks closed lower as continued violence in Ukraine and mixed earnings results made investors uneasy. Disappointing earnings reports from banking giant Barclays and investment manager Aberdeen Asset Management also put downward pressure on the stock market in London.

Fierce clashes reportedly broke out in the eastern Ukraine region of Slavyansk on Monday. Four Ukrainian soldiers are believed to have been killed, and an army helicopter shot down by pro-Russian militants.

Pro-Russian militants seized government buildings in a dozen or more Ukrainian cities in the east.

The crisis shows no signs of easing and appears to be escalating.

The combat in Ukraine coincides with increased Russian military activity elsewhere.

The commander of U.S. air forces in the Pacific is reporting a significant increase in activities by Russian planes and ships in the region.

Gen. Herbert Carlisle linked that to the situation in the Ukraine. He said Russia was demonstrating its capabilities and gathering intelligence on U.S. military exercises.

Carlisle said there had been long-range Russian air patrols to the coast of California and a circumnavigation of the U.S. Pacific territory of Guam. He said a U.S. F-15 fighter jet intercepted a Russian strategic bomber that had flown to Guam.

He also reported a sharp increase in Russian air patrols around Japanese islands and Korea.

Carlisle said there was a lot more Russian ship activity too.

U.S. stocks are lower today as insurance giant AIG (American International Group) reported a decline in profits. AIG was the recipient of a huge government bailout at the height of the financial crisis.

Readers may recall that US GDP growth for the 1st quarter came in at 0.1% -- barely a blip on a flat line. A closer look reveals the economy may not have grown even that much. The U.S. economy probably contracted in the first quarter for the first time in three years and only the second time since the Great Recession ended in mid-2009, new data suggest.

Fresh reports on the U.S. trade deficit, construction spending and business inventories have been softer than Wall Street expected.

The result? Economists now predict gross domestic product will be revised down to a decline of 0.2% to 0.4% in the first quarter.

The last negative quarter was in early 2011, when growth fell by 1.3%.

Recent data from the Labor Department showed the US unemployment rate dropped sharply in March. The details of that report were mixed to say the least, but now some academic economists are claiming the unemployment rate is not the best gauge for measuring the health of the economy.

David G. Blanchflower, an economics professor at Dartmouth College, and Adam S. Posen, president of the Peterson Institute for International Economics, argue in a new paper that the slow pace of wage growth is the best indicator of an incomplete economic recovery. Until wages start rising more quickly, the economy remains far from healthy.

Average hourly wages for American workers held steady at $24.31 last month. They have increased just 1.9 percent over the previous 12 months. But, after adjusting for inflation, real wages have only increased by something like 0.5 percent.

Today the White House released an 800-page report on what used to be called "global warming" but has more recently been called "climate change." With the release of the report, the White House coined yet another new term: "climate disruption."

The report claims that climate disruption is man-made and will result in a long list of catastrophic weather events. Unable to push such an agenda through Congress, the White House is promising to push new regulations through without using the constitutional method of lawmaking in Congress. Critics claim such measures will have wide-reaching, negative effects on the US economy.

In gold market news, an expedition to bring back the remaining gold from a steamship that sank in 1857 off South Carolina has recovered almost 1,000 ounces of gold - the first gold recovered from the wreck in almost a quarter century.

The S.S. Central America was bringing gold back from the California when it sank in a hurricane claiming 425 lives. In addition, thousands of pounds of gold went to the bottom aboard the 280-foot, side-wheel steamship.

About $50 million was recovered during expeditions to the wreck in the late 1980s and early 1990s before legal disputes shut down the operation.

Odyssey Marine Exploration of Tampa, Florida, announced Monday that almost 1,000 ounces of the gold was recovered during a reconnaissance dive last month.

The newly recovered gold includes five gold bars and two $20 Double Eagle gold coins. One of the coins was minted in San Francisco the year that the Central America sank. The gold bars weigh between 106 and 344 ounces.

Reports also indicate that more gold remains on the wreck at the bottom of the Atlantic Ocean.

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Gold jumps to a three-week high on continued tensions in Ukraine. U.S. stocks closed higher despite a slowing Chinese economy and Ukraine fears. Gold last traded at $1,309 an ounce. Silver at $19.57 an ounce.

Violence in Ukraine is once again weighing heavily on world financial markets.

Running street battles between pro-Russian and nationalist forces claimed dozens of lives in the Black Sea port of Odessa this weekend.

The Odessa bloodshed came on the same day that Kiev launched its biggest push yet to reassert its control over separatist areas in the east, hundreds of kilometers away, where armed pro-Russian rebels have proclaimed a “People’s Republic of Donetsk.”

While stocks have suffered as a result of the continued tensions in Ukraine, investors have sought the safe haven of gold.

Gold hit three-week highs in Europe on Monday, extending the previous session's gains, as the simmering tensions in Ukraine, a retreat in the dollar and a break above a key chart level fueled buying.

Stocks have also been impacted after a gauge of manufacturing in China came in below expectations, as did quarterly earnings from drug giant Pfizer.

HSBC's final reading of manufacturing activity in China came in at 48.1 for April, below the bank's preliminary reading of 48.3. The figure marked a fourth straight month of contraction, in contrast to the country's official PMI reading that showed a reading of 50.4. A reading below 50 indicates contraction, while a reading over 50 indicates expansion.

The markets will also be waiting for two testimonies this week before Congress by Fed Chair Janet Yellen. She testifies before the Joint Economic Committee on the economic outlook Wednesday and before the Senate Budget Committee Thursday.

Yellen will be tasked with trying to continue to convince politicians that the economy is getting better, despite ample evidence to the contrary.

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Gold prices back on the rise. U.S. stocks dip slightly. Jobs numbers look rosy but the devil is in the details. Gold last traded at $1,298 an ounce. Silver at $19.50 an ounce.

The US unemployment rate plunged last month from 6.7 percent to 6.3 percent, the lowest it has been since September 2008 when it was 6.1 percent. Economists had generally expected the rate to only decline from 6.7 percent to 6.6 percent.

On its face, it appears this report is indicative of a booming US economy. But, as they say, the devil is in the details and, in this case, the details are simply bad news. The sharp drop occurred because the number of people working or seeking work fell. The Bureau of Labor Statistics does not count people not looking for a job as unemployed.

The U.S. labor-force participation rate sank to 62.8 percent in April from 63.2 percent in March to match a 35-year low. Some 806,000 people dropped out of the labor force.

Despite the unemployment rate plummeting, more than 92 million Americans remain out of the labor force. The amount of Americans (not seasonally adjusted) not in the labor force in April rose to 92,594,000, almost 1 million more than the previous month. In March, 91,630,000 Americans were not in the labor force.

Within that overall number, the number of women, 16 and older, not in the labor force climbed to a record high of 55,116,000 in April. This means there were 55,116,000 women, 16 and older, who were in the civilian, non-institutional population who not only did not have a job, they did not actively seek one in the last four weeks. That is up 428,000 from the 54,688,000 women who were not in the labor force in March.

A number of economists look past the "main" unemployment rate to a different figure the Bureau of Labor Statistics calls "U-6," which it defines as "total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers."

In other words, the unemployed, the underemployed and the discouraged. The U-6 rate in April was 12.3 percent, a rate that remains high.

The jobs numbers weren't the only statistic that fell short of expectations today.

The Commerce Department reported this morning that new orders for manufactured goods increased 1.1 percent in March. A consensus of economists had forecast new orders received by factories advancing 1.4 percent. In other words, the actual numbers fell significantly short of expectations. Moreover, February's orders were revised downward to show a 1.5 percent rise instead of the previously reported 1.6 percent gain.

Bloomberg is reporting this week on a new threat which could precipitate a crisis in the global banking industry.

Banking giants Credit Suisse and BNP Paribas are at risk of being criminally charged by U.S. and state prosecutors.

Credit Suisse has been the target of a U.S. criminal probe into whether it helped Americans evade taxes. BNP Paribas has been the subject of a federal probe into possible violations of sanctions barring business with prohibited countries.

Prosecuting the companies would break with a past practice of brokering settlements with large banks considered integral to the financial system.

The 2002 collapse of Arthur Andersen, the accounting firm indicted in the Enron scandal, “should be a lesson” for prosecutors, Brad Hintz, an analyst at Sanford C. Bernstein & Co., says.

Prosecutors have been stung by lawmakers’ criticism that multibillion-dollar settlements have done too little to punish Wall Street in the wake of the financial crisis.

Even after talking with financial regulators about ways to mitigate damage -- such as ensuring banks keep charters -- prosecutors might not fully understand consequences for the market, according to industry lawyers and bankers who are following the case.

Bank clients -- including trustees, fiduciaries and pension funds -- could be forced to cut ties with a financial institution labeled a criminal enterprise.

Counter-parties also might think twice before entering into billion-dollar transactions with such firms. Damaging a bank’s business could lead to broader fallout across the financial industry, just as Lehman Brothers Holdings Inc.’s collapse in 2008 prompted investors to withdraw from other firms on concern its exit would set off a wave of losses.

The mere threat of a criminal prosecution could even cause customers to lose confidence in the institution and could cause a run on the bank.

Client psychology also could come into play. For example, even if investment managers aren’t prohibited from working with a bank, they may shy away because they don’t want to explain why they put funds in a firm with a criminal past.

Mindful that the specter of criminal charges helped put financial institutions such as Bank of Credit and Commerce International and Drexel Burnham Lambert Inc. out of business, prosecutors in Washington and New York have met with representatives of the Federal Reserve and the Office of the Comptroller of the Currency to discuss the regulatory risks of indictments.

In a scenario like this, it is comforting for investors to know that gold is an asset in its own right, not dependent on anyone's promises. That's one reason it has stood solid as a store of value and trusted medium of exchange for 5,000 years.

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Gold prices fall sharply lower on a rise in consumer spending and income. U.S. stocks ended generally lower after three days of gains as jobless claims unexpectedly rose. Gold last traded at $1,283 an ounce. Silver at $19.04 an ounce.

There are fresh indications the price of gold is set to move higher. Meanwhile, technical analysis suggests we are on the cusp of a 20% correction in the stock market. Additionally, there was yet another disappointing jobs report put out today.

Gold has been one of the better performing assets year to date and has risen in value in 12 out of the past 13 years. Even so, it remains extraordinarily undervalued if we look at many historical metrics.

For instance gold is at the lowest price it has been, if we compare the value of the U. S. gold stockpile to the Federal Reserve’s monetary base. This means that, hypothetically, if the U. S. were to back the dollar with gold, we would have to see a tremendous appreciation in the gold price in order for such a system to function smoothly.

We are finding more and more that foreigners are less willing to hold dollars and are increasingly swapping these dollars, and dollar-denominated assets, for gold.

We saw extremely strong buying from the Chinese at the $1,200/ounce level. Now we are seeing buyers come in whenever we see downward price action towards that level.

Foreigners, especially in the East, want gold. We have seen tremendous central bank buying from Turkey, Russia and Kazakhstan over the past few years, and this buying goes unabated. While there is no official report of the People’s Bank of China buying, many gold market analysts believe that the PBoC has been the world’s largest buyer and that its officials are afraid to announce the bank’s official holdings because of the effect it will have on the gold price.

There are other forces supporting higher gold prices as well. Mining companies are having a very difficult time producing gold profitably at $1,300/ounce. While most large gold producers are announcing they can produce the yellow metal at $1,000 – $1,100/ounce. When all is said and done, most of these companies have razor thin margins with the current gold price. Many companies were forced to reduce their gold reserve estimates, meaning they now have less in-ground gold they can mine profitably.

If the gold price remains low, it is possible more such action will be taken. More mines may shut down and this will reduce global supply.

With supply declining and demand rising, the price must rise. Now that we are consolidating the gains from the beginning part of the year, some of the larger buyers will begin to push prices higher.

The outlook from technical analysts for the US stock market isn't nearly so bright.

Despite the Dow Jones industrial average reaching a new record high, Richard Ross, global technical strategist at Auerbach Grayson, says certain technical indicators are calling for a serious correction.

"I'm going to be completely clear here: I'm quite bearish and I think the market's going significantly lower," said Ross.

Ross sees a big problem with the S&P 500's chart—a 20 percent problem to be exact. In 2011, the index corrected by about that much to its 150-week moving average after making moves very similar to its most recent price action.

"I think that we're in exactly the same scenario," said Ross, who notes that a similar decline to the current 150-week moving average would also be roughly 20 percent to around the 1,500 level. "I think that's what we're staring at right here."

The economy may not be supportive of a continued bull market in stocks either. The number of Americans filing new claims for unemployment benefits unexpectedly rose last week. This is yet another statistic in a parade of such statistics on the jobs market over the past few months.

Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 344,000 for the week ended April 26, the Labor Department reported today. That was the highest level since February.

Economists had forecast first-time applications for jobless benefits falling to 319,000.

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