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Gold Prices in Focus as ECB Decision, U.S. Jobs Report on Deck

June 4, 2014


    Gold Prices in Focus as ECB Decision, U.S. Jobs Report on Deck – Gold prices have been getting hammered since the last week of May. In fact, yesterday’s small gain in gold prices was the first after seven consecutive days of losses.

    From a long-term investment perspective, gold is well positioned. By now, everyone knows that the Fed has overplayed its hand through its unprecedented aggressive monetary stimulus in recent years. Untangling the Fed’s wicked web will likely lead to economic chaos, which will benefit gold prices. (And let’s not forget the trouble brewing in the $700 trillion global derivatives market.)

    In the near-term, however, gold traders are nervously watching this week’s decision by the European Central Bank (ECB), as well as the U.S. jobs report set to be released this Friday. The ECB, which will meet and announce its decision this Thursday, could decide to launch a new asset purchase program (similar to the Fed’s QE) or they could introduce negative interest rates in an effort to halt the deflationary pressures building within the Eurozone. Of course, the ECB could also choose to leave its policy unchanged. Regardless, all eyes are on the ECB this week.

    Additionally, this Friday the Labor Department will release its highly anticipated jobs report for the month of May. Most economists have agreed to a consensus figure of 215,000 new non-farm payrolls. Any deviation from this figure could impact both gold and equity prices.

    I personally expect a highly aggressive tone to emerge from the ECB on Thursday and a better-than-expected jobs report on Friday.

    As the bull market in gold comes under major selling pressure, U.S. stocks are sitting at new all-time highs, market volatility is at an extreme low, inflation is clearly on the rise and Chinese demand for gold remains voracious.

    So too, interest rates are plummeting. To this point, consider this excerpt from a piece in Barron’s last weekend:

    “The remarkable piece of good news that’s getting ignored is that real interest rates have stopped increasing. Real rates, at least historically, enjoy the single strongest correlation to gold prices, and they leveled out in 2014. Lately they’ve even pulled back a bit. “Gold normally reacts favorably to falling real yields … but not recently.”

    These are strange days, indeed.

    For now, keep your eyes on Thursday’s ECB decision and Friday’s jobs report.

    Until tomorrow,
    Jerry Robinson

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