Jobs Market Is In Trouble Forcing The Fed To Cut Rates Which Will Put Downward Pressure On The US Dollar And Drive Gold Much Higher
We are at the inflection point that will see generalist investors get bullish on gold and gold stocks.
Trends in the jobs market are getting worse. They have significantly increased the odds the Fed will cut by a half-point at their September meeting. They are behind the curve and risking a hard landing instead of a hoped for soft landing.
The August jobs report today came in significantly less than the estimates. Possibly even more alarming to the Fed are the revisions to June and July with a steep drop from the initial reports. This suggests that the poor August number will also be revised downward significantly and the jobs market is slowing much more than most have been expecting.
These revisions are horrible when the economy is at an inflection point and need to be more accurate instead of the BLS manipulating them to try making things look better than reality.
The trend of losing full-time jobs that cause workers to take on part-time jobs with workers making less money means the jobs market is in trouble. The initial reports were bad enough and now the revisions show the trend is much worse.
Listening to the folks on CNBC, their focus has shifted to the weakness in the jobs market and what that means to the economy and interest rates. This is a significant shift over the past few months from pumping up the Magnificent 7, Bitcoin and AI stocks.
The JOLTS report on Wednesday spooked them a bit and they finally started to realize the jobs market is struggling as jobs openings are declining. They tried bravely to spin the August report and revisions to June and July into don’t worry be happy, but their tone was of concern.
The reality is that the Fed, as usual, is behind the curve. As there is no meeting in October, the chances that they will have to risk admitting they are behind the curve by raising by a half-point have increased. They know a half-point could cause some panic but they may have to do it and try to calm nerves with their public spin due to the gap between the September and November meetings.
Someone should be asking how the BLS is getting things so wrong. First they announced a big revision prior to the Fed’s Jackson Hole conference when Chairman Powell declared victory over inflation and that they are ready to start the rate cutting cycle.
They aren’t getting any better with their numbers as they had steep revisions to the June and July number. The August numbers that were bad and will get worse when they are revised down. Somebody should send them new calculators because the ones they are using are broken.
Whichever way the Fed goes with cutting this month, the US dollar (USD) is very weak and looks like it is in the midst of a serious correction. This will concern the Fed about how much they can cut if the economy hits a hard landing because a much lower USD will cause inflation as the US imports so much stuff.
The Fed entering a rate cutting cycle will put downward pressure on the USD and will add fuel to the fire of the gold bull market. Plenty of gold miners are doing extremely well as they are seeing record free cash flow.
The higher gold goes will help make gold mining one of the best performing industries in all of the economy as they are producing gold on average for much less than the price of gold. This will help the bottom lines from the highest cost gold miners to the lowest cost gold miners.
We are already seeing generalist investors dipping their toes into gold and gold miners. As more do this it will add more power to the gold bull market and bring the gold miners into the gold bull market in a bigger way.
An amplifier is that the menu of high-quality gold miners, gold mine developers and gold explorers is very small. It won’t take a lot of enthusiasm from generalist investors to make the gold stocks go parabolic.
This is a likely outcome for many gold stocks because until February of this year, they were in a bear market that drove valuations to record lows based on all the key historical metrics. They are coming from very low bases and have a lot of catching up with the gold bull market to do.
Gold is in the midst of a powerful bull market, gold stocks are poised to enter an even more powerful bull market. Especially the best in class gold miners, gold mine developers and explorers with important gold discoveries.
All the best,
Allan Barry Laboucan
Disclosure
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