Video-July-30-2013-Archives-Daily-Show

Even optimists are looking at the upcoming jobs report, which average analysis is pegging around a 175,000-job increase for July, as another wash. Perhaps the unemployment rate will decline to 7.5 or even 7.4% but that is a slim condition to prediction on which to pin a belief that there will serious talk out of the Fed to start decisive tapering. Maybe by the end of September things will have swung around and the employment picture will appear rosier. But what are the chances?

"If Bernanke comes out and specifically indicates that there is underlying weakness in the jobs market, then I think gold is going to go much higher," said Jeffrey Sica, chief investment officer at Sica Wealth, which manages over $1 billion in client assets. 

Regardless, we are in for a choppy ride as anxieties heighten. One can presume that as soon as the July FOMC meeting is over on Wednesday the jitters will start regarding the September meeting, where a lot of money is being bet that there and then tapering will begin. We are also facing policy meetings this week of the European Central Bank and the Bank of England, so some winds will be blowing from Europe as well.

It is time to begin to wonder if tapering will have anything other than an emotional effect on gold. There are trillions of dollars in liquidity that are still unreleased to the general economy and at some point as that money enters the bloodstream, inflationary pressures will certainly rise.

Some smart money is beginning to believe that this is an excellent time to get into gold since it may be headed back toward $1800 on such worries.  While we are squaring off with some short term volatility, which has often turned against gold, the long-term prospects are strong. 

The equities markets have been rising. This seems to hurt gold as people take money away from metals investments and deal their cash over to stocks, especially blue chips. But that investing is a portent of inflation. We have been in a classic Keynesian liquidity trap, a logjam, and it is by the sheer force of QE3 easing that Bernanke and Company have been trying to smash that jam up. 

Another incoming bogie on inflation radar is the rise in June in personal income (household). Sentier Research said income rose 0.7%, or $351, to $52,098. Compared to Jan. 2012, income is up by 1.8%. Despite the bit of positive news, income is still 4.6% below the median in December 2008, or about $4,000. 

We need a more granular look at the rise in income, because if it mostly affected the upper percentiles, there will not be an appreciable effect on inflation. Simply explained, a family with a $400,000 income does not spend appreciably more on items in the CPI basket than a family making $75K or even $55K. Everyone has to eat, everyone has to transport themselves, pay for basics. This does not mean that the richer people don't spend more money, just not that much more on CPI stuff. 

Until the unemployment rate declines appreciably, which we all hope it does for many reasons, inflation may be stifled. 

While the slowdown in China affects the world economy, we need to be wary about the tail wagging the dog. Together, The E.U., U.S., Japan, and other highly-developed economies account for about $60 trillion per year in economic activity. China accounts for a bit over $7.3 trillion. So, that's about 1/8th of the developed world's activity. 

China needs the developed world to get strong before it again gets strong in a credible way. The U.S. and the E.U. along with Japan, Canada, Australia, South Korea and a few other economies need to be looking to one another for recovery.

(FYI - wondering about India? Their economy runs at about $1.8 trillion per year.)

Often enough, as history tells us, a game-changer comes along to shake things up. Only the developed world can provide that with its massive resources. 

Wishing you as always good trading,