Disdain For Gold

I think it's pretty safe to say that last week's news climate for Gold was just about as bearish as it could get. And the "narrative" in the financial press seemed more negative than ever. Here are just a few examples:

1. Last Sunday, the Swiss Gold Referendum ("Save Our Gold") was handily defeated by Swiss voters. The financial press had a field day with this story. I counted more than three dozen separate headlines in a 24-hour period following the release of the Swiss poll results on this issue. However, an equally important story about the lifting of import restrictions on gold in India received almost no coverage during this period.

2. On Thursday, December 4th, Mario Draghi, President of the European Central Bank, seemed to go out of his way to emphasize that any future asset purchases (with printed money) to stimulate the EU economy would NOT include gold. His comments put to rest some minor speculation over the last 10 days or so that any future ECB "quantitative easing" measures might actually include gold.

3. Crude Oil prices continued to be pressured lower following the Thanksgiving announcement by OPEC that output would NOT be cut by swing producers (i.e. Saudi Arabia). Wall Street research and the financial press have focused almost entirely on the potential deflationary forces connected to lower oil prices and how these forces may be negative for gold prices. Of course, almost no press has been given to the potential defaults in the energy sector where many companies are heavily leveraged in support of expensive drilling and exploration activities that are probably NOT profitable without substantially higher oil prices. And almost no one is talking about the potential negative impact on employment or CapEx spending if serious problems persist in the U.S. energy sector.

4. And most important, the U.S. Dollar continued to soar in foreign exchange dealings, with the benchmark U.S. Dollar Index advancing 1.24% last week to its highest level since March 2009. Almost every negative report on Gold attributes bearish price action in the yellow metal to the rise in the U.S. Dollar. However, I have yet to read any mainstream report on how resilient gold prices have been in the face of the stronger Dollar, and even though it may SEEM that Gold prices are sharply lower on the year so far in 2014, Gold is actually FLAT on the year! The U.S. Dollar Index is up a staggering 11.64% year-to-date, which effectively means that Gold is up 11.64% against the average foreign currency component in the U.S. Dollar Index!!

So what happened to Gold and Silver prices last week against the backdrop of all this bearish narrative?

Gold ended the week at $1192.60/oz, which was UP 2.23% from the prior Friday close and UP 4.46% from its intra-day low on Monday, December 1st.

Silver ended the week at $16.29/oz, which was UP 5.23% from the prior Friday close and UP 15.04% from its intra-day low on Monday December 1st.

Food for thought?

In the interest of full disclosure, I am short the S&P 500 Index and long Gold/Silver mining stocks on a ratio of four to one ($4 short in the SPX for every $1 long in Gold/Silver stocks).

Am I the only one who thinks the latest U.S. Employment Report (for November) looks a bit strange as reported early Friday morning, December 5th? The headline Non-Farm Payrolls increase was reported at +321,000 for November (a giant upside surprise to Wall Street analysts). However, the Household Survey increase for November employment was reported at just +4,000. And the BLS "Adjusted Household Survey" Employment, which is supposed to mimic Non-Farm Payrolls, actually showed a decline in employment of -115,000 in November. Which number is correct?

The National Retail Federation estimated that shoppers on average spent $380.95 at stores this past Thanksgiving holiday weekend, four days which began on Thursday (11/27), compared with $407.02 a year ago, and that total spending fell about 11 percent year-over-year to $50.9 billion over this key sales weekend. These negative retail sales results seem much more consistent with the sharply lower Household Survey November Employment results as compared to the more visible and more popular headline Non-Farm Payrolls results. More food for thought!

Postscript (Sunday Evening, December 7th): Apparently, there are others who see something strange in last Friday's U.S. Non-Farm Payrolls Report. I just read an extraordinary piece of research on U.S. Payroll Tax receipts as written by Jeffrey Snider of Alhambra Investment Partners (and reprinted on www.zerohedge.com). It looks like total U.S. Payroll Tax receipts are NOT consistent with the surprisingly strong Non-Farm Payrolls growth as reported by the BLS recently or for this entire year. Here is the link for your convenience:

http://www.zerohedge.com/news/2014-12-07/something-stinks-inside-bls-jobs-data