Fundamentals & Gold & The Euro

ECM-Wave-2011-2020

Gold tumbled about 3% after positive US jobs data sent the dollar rallying and rekindled worries the Federal Reserve could be tempted to scale back its monetary stimulus later in the year. I have warned that the US economic outlook is bullish into 2015.75. The dollar will rise and that will help turn the US economy down 2015.75 into 2020.05.

DowIntRates-1929

The US non-farm payrolls report for June showed employers added 195,000 new jobs last month, exceeding expectations of 165,000. The unemployment rate held steady at 7.6% and this confirms the trend in motion that will see interest rates rise WITH stocks. The talking heads never get this right. Stocks rise with interest rates and collapse with declining rates. Look at Japan. As long as rates rise, people are borrowing and that is GOOD for the economy, Rates decline with every recession and depression as part of the Keynesian idea of how government manipulates the economy. It has NEVER worked even once. Every trend must run its course – It’s just a question of time.

The better-than-expected job numbers are in line with economic outlook that will steer the Fed toward reducing its timetable for $85 billion in monthly bond purchases, which in all honesty is nothing compared to the total GDP of just the USA.

The European Federal Government (based upon its real actions) will most likely be forced into nationalization of the banks when we begin to see German banks fail. Nationalization takes place whenever governments act in the so called “public interest” to take over private property. Nationalizing the European banks will be one small step for the EU Commission because they will not see themselves as the problem – always the savior. The EU will be forced to nationalize rather than reform and then the new federal government of Europe will save the day supplying the continent’s credit needs ending free markets and moving closer to the state managed economy of communism. The European Treasury would become the source of new money, replacing commercial bank credit but loan will only be what they then believe have not an economic value but a social productive value. Normally, one would expect asset inflation as many will once again suggest hyperinflation. However, this tends to be more Draconian and results in hoarding because of a lack of freedom and confidence. When such trends emerge, the currency of other nations are highly sought. Dollars circulated freely behind the Iron Curtain. Would someone in Latvia or Ukraine save their local currency? Never! They hoarded dollars.

This is why increasing the US money supply by $3 trillion did nothing. The dollar is the ONLY currency that is trusted around the globe. He who has the most nukes makes the money and rules.

The ECB will most likely be absorbing the losses and writing them off rather than imposing losses on either the taxpayers or the depositors. The civil unrest may force the EU Commission to back away from its bail-in policy. Absorbing the debts by the central bank will shift the ECB granting it power to also create an elastic money supply as enjoyed by the Federal Reserve. 

Germany will shift and go along with this power ONLY when it hits home with the German Banks. This is most likely the trend we will see sending the Euro into a Crash-&-Burn Mode and the dollar into rally that the Fed will raise rates all the way up trying to stop what they will misunderstand and see only as a domestic speculative bubble.

We closed the Euro on cash at 12830. This elected minor Weekly Bearish Reversals but the major support is still at 12800. Once that gives way, we will begin to see some sharp declines ahead. Gold closed at 1212.70 on the cash so we have not yet broken there just yet either.