AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.
8/6/2004: Gold spikes higher on weak jobs data
Greeting from American Gold Exchange. In this very brief issue brief of Gold Market Update:
Gold spikes higher on weak jobs data Gold spikes higher on weak jobs data
Oil sets record highs
Stock markets look extremely vulnerable
Classic U.S. coin prices poised to surge
Gold spikes higher on weak jobs data
Gold surged $7, reaching $401 an ounce this morning immediately following the release of a stunningly weak U.S. jobs growth report for last month. Wall Street economists anticipated the creation of approximately 228,000 non-farm jobs in July. Today’s reported figure of merely 32,000 added jobs was far lower than expected for the second month a row, and came as a huge disappointment. In addition, payroll growth in May and June has been revised lower by 61,000 jobs, showing that the job market is far weaker than commonly thought.
After channeling in recent weeks between $387 and $405, the gold price is now pushing the higher end of its trading range once again. Today’s dismal employment figures, combined with record-high oil prices and a weakening stock market, could well provide the stimulus needed to push gold toward another breakout.
We expect the gold price to grind higher on this news and retest the 2004 highs of $430 sometime this fall.
Gold’s next breakout above $430 may happen this year after all. But either way, we’re still targeting gold at $480 to $550 in the next 12 to 24 months. It’s just a matter of time before gold moves substantially higher!
Oil sets record highs
A major factor contributing to gold’s rise is expensive oil. For the sixth consecutive day, oil prices have set record highs. Ongoing violence continues to threaten consistent supplies from the Middle East; the third biggest refinery in the United States has been shut down by a fire; and fears are growing of possible disruption in Russian oil exports. All of these factors point to costlier oil.
The rippling effect of escalating oil prices cannot be easily dismissed. Daniel Yergin, Chairman of Cambridge Energy Research Associates, says that each $1 increase in the oil price acts like a $20 million-a-day tax — $7.3 billion a year — on the rest of the economy. We repeat, like a $20 million–a-day tax for every $1 increase in the price of a barrel of oil!
In just the past five weeks, oil has risen by $7 per barrel, from $37 to $44. Multiply that $7 increase by $20 million-a-day, and it means a whopping $140 million is now being sucked out of our economy every day! And don’t forget, energy prices are not calculated into the U.S. government’s official inflation figures! The effect of these record oil prices will be felt for months to come.
Stock markets look extremely vulnerable
The stumbling U.S. economic recovery is causing the stock markets to falter in earnest. This week the Dow dropped beneath 10,000 once again after suffering its greatest single-day drop since last March. Both the S&P 500 and Nasdaq recently hit their lowest levels for the year. High oil prices are a major contributing factor to a weaker U.S. economy and as a result, weaker U.S. stocks.
Most analysts are now predicting that the stock market will get worse before it gets better. Francois Trahan, chief strategist at Bear Stearns, wrote in a note to clients last week that “short of a significant decline in oil prices, we do not foresee a likely catalyst that would spur the market significantly higher at this time.”
Even before today’s jobs disappointment hit the markets, internationally renowned market analysts (and our friends), Mary Anne and Pamela Aden, told their clients earlier this week: “Clearly, the market is slowly deteriorating and it has been for the better part of this year. The Dow is weak below its 40-week moving average at 10,230, but even if it rises to 10,400, it will still be in a six-month downtrend.”
Today, after the jobs report, the Dow is trading below 9900. Be careful! One of our trading partners commented earlier today that this jobs report is a disaster for our economy. We agree.
Classic U.S. coin prices ready to surge
From past experience we can unequivocally say that there are two major factors that drive the general public into buying precious metals and classic U.S. coins: higher gold prices and declining stock prices. In the past five years, whenever the stock market has faltered, the demand for classic U.S. coins has surged dramatically, supplies have dwindled, and prices have risen.
Today, supplies of classic U.S. coins, across the board, are the lowest we’ve seen since we started in this business in 1980. With gold edging toward another breakout and the stock markets in serious decline, the stage is set for potentially huge gains in classic U.S. gold coins. Lower stock market values will create new coin buyers and reactivate ones who have been on the sidelines since the economy appeared to be improving this spring.
Remember, the U.S. stock market is the biggest market in the world, and the classic U.S. coin market, by comparison, is tiny. A small percentage of stock market participants can have a huge effect on the classic U.S. coin market. In 1988 and 1989, for example, coin prices exploded by 200% to 300% as a direct result of the October, 1987 stock market crash, in which the market lost 25% in one day. Falling stock market values can and often do have such a dramatic affect on classic U.S. coin prices because there are so few coins available relative to the huge pool of potential buyers!
If you have questions about the market, please call your account representative or peruse our extensive and informative web site. If you’re interested in the hard asset products we offer, simply click on the links below:
Classic U.S. Gold Coins
Common Date U.S. Gold Coins
Classic Rare Coins
U.S. Silver Coins
Gold and Silver Specials
Blowout Gold and Silver Coins
European Gold Coins
Modern Bullion Coins
That’s it for now. As always, we’ll keep you informed so you can make intelligent hard asset buying and selling decisions!
Dana Samuelson, Owner and President
Dr. Bill Musgrave, Vice President
AGE Gold Commentary
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