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4.17.14 - Labor Market Struggles To Gain Momentum

Gold prices end lower on upbeat U.S economic data and safe-haven appeal. U.S. stocks higher as traders cheered upbeat earnings reports. Gold last traded at $1,293 an ounce. Silver at $19.60 an ounce.

Weekly jobless claims have risen yet again, but the cheerleaders on Wall Street and in the so-called mainstream media still insist on trying to put lipstick on this pig of an economy.

Claims rose to a seasonally adjusted 304,000 last week, an increase of 2,000 from the previous week's revised level.

Government, particularly the Federal Reserve, is taking credit for what it says is an improving economy and a better employment situation. Other, unbiased, observers are not so sure.

Lindsey Piegza, chief economist for Sterne Agee, says she doesn't see momentum building in the labor market. If frigid weather alone could explain the disappointing batch of employment reports from over the winter, then the economy would have seen a bigger bounce as companies played catch-up with their hiring, Piegza said. The economy would have added more jobs than the 192,000 jobs created in March, she said.

"Taken together, the labor market is losing momentum from the start of 2013 and it's really not painting an encouraging picture for the next 12 or 24 months," Piegza said.

John Ryding, the chief economist for RDQ Economics, questions whether monetary policy can truly spur more hiring.

Manipulation of interest rates and the dollar by central bankers cannot take the place of sound, underlying economic fundamentals and those just don't appear to be in place. That's why, for months now, we have kept seeing disappointing economic reports and statistics. Meanwhile, the Fed keeps telling us everything is looking brighter. But most Americans don't see any evidence of this claim.

For those who are currently employed, the government-sponsored Ponzi schemes known as "entitlement programs," have placed a huge, unsustainable burden on their shoulders. The latest census report shows that 86 million full-time workers are sustaining 148 million benefits recipients. Eventually, there will be too few carrying too many and the economic implications of that reality are something the policymakers in Washington refuse to recognize or address.

In other financial market news, hedge funds posted their worst first-quarter results since 2008, according to financial data service Preqin, whose “All Hedge Fund Strategies” index shows a gain of 1.2 percent since the start of the year. That compares poorly to many other categories of investments, including gold, which was up some 8% during the first quarter.

The Chinese understand the value of gold and that's why Chinese demand for gold, both from investors and the Chinese government, has been skyrocketing.

As we have previously reported, this trend is expected to continue, with Chinese gold demand slated to rise another 20% to 25% by 2017. One reason for official Chinese demand for gold is the desire to supplant and eventually replace the US dollar as a medium of exchange and reserve asset.

The combination of rising demand for gold and the inevitable devaluation of the dollar has tremendous implications for those who choose to hold gold and those who choose to hold dollars. Gold, priced in dollars, will see its value increase as the value of the dollar continues its fall over the long-term.

NOTE: Swiss America Trading will be closed tomorrow (April 18) in observance of Good Friday. We hope you and yours have a blessed Easter! Check back Monday for the latest market news.

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4.16.14 - Inflation On The Rise!

Gold prices slightly higher after Yellen speech. U.S. stocks rise on upbeat data, earnings reports. Gold last traded at $1,303 an ounce. Silver at $19.63 an ounce.

We are starting to see the early warning signs of an economic condition that hasn't been widely mentioned in some time: inflation.

After two months of sharp increases in food prices, grocers are starting to pass along their higher wholesale costs to consumers.

Food prices increased 0.4% after posting a similar jump in February, the Bureau of Labor Statistics said Tuesday. That's the largest monthly increase since September 2011. Beef, pork, poultry, eggs and milk have had the most dramatic price hikes as drought, a virus outbreak and rising exports have thinned U.S. supplies.

The higher food bills are squeezing households still struggling with meager wage gains and could crimp spending just as the recovery is expected to accelerate.

Both beef and pork prices have been reaching new all time highs on an almost daily basis. Prices for shrimp have hit a 14-year high due due to a disease that has hit the shrimp population.

Though the Labor Department and Federal Reserve keep telling us there is essentially no inflation, out here in the real world, the cost of living is rising.

On Tuesday we learned that even by skewed government statistics, inflation is starting to rise faster than officials and economists had suspected. Over the past three months, core CPI inflation is increasing about 1.8 percent on a yearly basis.

Should fears of inflation continue to build, gold investments are ideally suited to protect wealth. Gold has historically been renowned for its ability to provide an effective hedge against high inflation.

There are other factors expected to drive gold prices higher as well.

David Mazza, head of research at SPDR ETFs and SSGA Funds sees gold's role as a safe haven coming to the fore, at the same time paper assets become more volatile. This includes concerns on the geopolitical front.

Recent tensions in Ukraine, between Western nations and Russia, seem to be escalating and have maintained a strong fear sentiment in the marketplace, resulting in safe haven demand for gold. But this is not the only geopolitical difficultly investors could face this year. A new video shows what looks like the largest and most dangerous gathering of al Qaeda in years.

In the middle of the clip, the man known as al Qaeda's crown prince, Nasir al-Wuhayshi, appears brazenly out in the open, greeting followers in Yemen. Al-Wuhayshi, the No. 2 leader of Al Qaeda globally and the head of Al Qaeda in the Arabian Peninsula, has said he wants to attack the United States. With some fighters faces blurred, there is worry it signals a new round of plotting.

In economic news, the GDP figures from China show the lowest rate of growth in 24 years. This is a concern around the world as many economies are dependent on China as an engine for growth both on the supply side and the demand side. A slowdown in China could spread to other economies, which is bad news for the financial markets.

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4.15.14 - Gold Presents Major Buying Opportunity

Gold prices fall sharply on profit-taking and a stronger U.S. dollar. U.S. stocks end higher on upbeat earnings reports. Gold last traded at $1,300 an ounce. Silver at $19.49 an ounce.

As millions of Americans rush to meet tonight's deadline for filing their federal income taxes; gold has entered a correction, tensions continue to escalate in Ukraine and economic reports raise concerns about the health of the US economy.

The price of gold is off about 2% on technical-driven profit taking today after five days of consecutive gains. Despite the sell-off, there is evidence higher prices are in store.

Richard Ross, global technical strategist at Auerbach Grayson, says today's correction is providing a good buying opportunity, as the charts are doing something they haven't done in a while: flash a buy sign.

"There are some signs that make gold very attractive at these levels," said Ross. "I'm not a gold bug per se but I do like a nice chart and I think that's what we can see here with gold. It has a lot of things in its favor."

Pulling out his fundamentals hat, Ross also sees a weaker dollar, lower interest rates and volatility in the equity markets as tailwinds for bullion.

One of the recent bullish indicators for gold has been rising Chinese demand, making China the world's number one consumer of gold. According to the World Gold Council, that trend will continue over the next few years, with Chinese gold demand rising by another 20% by 2017.

Another factor that could potentially drive global investors to gold as a safe haven is the continuing tension in Ukraine. This tension ramped up yet again today as Russian Prime Minister Dmitry Medvedev said Ukraine was on the verge of civil war as the country launched a military operation against pro-Russian militants in the separatist East.

The government in Kiev is taking the battle to the restive East of the country after armed pro-Russian activists occupied administrative buildings in cities including Donetsk, a regional center of more than 900,000 about 62 miles from the Russian border. An attempt to head off the mounting insurgency may escalate tensions with Russia, which has 40,000 troops massed on Ukraine’s border after its annexation of Crimea last month.

In addition, a Russian fighter jet buzzed a US Navy destroyer in the Black Sea yesterday, making as many as 12 low-level passes over the ship in a clear effort at intimidation.

In more mundane economic news, new economic reports were released today which all show reasons to be concerned about the US economy:

• The Consumer Price Index (CPI) rose 0.2% in March, slightly higher than 0.1% economists had forecast. The Bureau of Labor Statistics said increases in the shelter and food costs accounted for most of the rise. Consumers are especially feeling the hike at the grocer where beef is at a record high and milk, and some vegetables, are also climbing in price.

In fact, beef prices are at their highest levels in 27 years and the drought in California is expected to drive fruit and vegetable prices up across the board anywhere from 14% for corn to 34% for lettuce in coming months.

• Confidence among home builders in the market for new, single-family homes remained in a holding pattern in April, ticking up just one point.

The National Association of Home Builders/Wells Fargo Housing Market Index rose to 47 from a downwardly revised reading of 46 the month before. The reading disappointed analysts who had expected it to rise to 49. A reading of more than 50 indicates more builders view market conditions as favorable than poor. In other words, more builders view market conditions as unfavorable or poor today than favorable.

• U.S. business inventories rose a bit less than expected as sales rebounded, suggesting a slow pace of restocking could weigh on economic growth. The Commerce Department reported that inventories increased 0.4 percent in February after rising by the same margin in January. Economists had forecast inventories increasing 0.5 percent in February.

Businesses accumulated too much stock in the second half of last year and are placing fewer orders with manufacturers while they work through the pile of unsold goods.

Add to these concerns; severe weather, the expiration of long-term unemployment benefits and food stamps cuts ... all of which add up to a gloomy forecast for growth.

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