Gold falls after better than expected jobs report

In the Lead: “Written in Cement?”

Markets turned quiet but somewhat apprehensive ahead of the release of the US jobs figures this morning, while European exchanges were seen closing out their trading week near six-month highs. Greece was still hard at work trying to secure its second round of bailout money as its bondholders were preparing to take as much as a 70% haircut on instruments gone sour. Meanwhile, other metrics from Europe offered very little in the way of comfort and more in the way of apprehension as to where things might be headed in the near-term.

That “near-term” in Europe might be “darker” than many currently anticipate (as reflected in January’s asset-buying euphoria), if we take note of certain underlying trends. Note for example that M3 data coming from the eurozone points to the largest ever monthly drop in credit extension to the private sector; to the tune of more than €74 billion. The injection of liquidity has not resulted in an injection of loans into the region’s faltering economy. And, while the euro has managed to claw its way back to the $1.30 area, we are being warned that we ought not to fall for the idea that the eventual end to the debt crisis will boost the common currency to any significant degree; this, after all, is a credit and not a currency crisis. Read on.

The €74 billion credit collapse figure is twice as large as the credit contraction that took place in the crunch of 2008-2009. European banks are sitting on the money that the ECB has doled out to them. In part, the drop is attributable to a parallel collapse in credit demand. However, the corollary to all of this might just turn out to be that which Standard Bank analysts have termed a possible “deep and prolonged recession, not just some temporary turndown.” Little wonder then, that, when considering the fact that 40% of its exports are aimed at the Old World, China’s Premier Wen is reportedly weighing the idea of “chipping in” to the EFSF and the ESM.

Not that China has its own near-term path all “sewn” up; certainly not if you ask Messrs. Gary Shilling and/or Gordon Chang. Mr. Shilling, who alerted us to the Great Recession that began in 2007, now projects that China will indeed undergo a “hard landing” and do so perhaps this very year. Mind you, “hard landing” implies growth at the otherwise more than enviable (if you are sitting in any other part of the world) rate of about 6%.

A quick round-up of recent Chinese economic metrics spells “worry” to say the least. Standard Bank dispatches relay the figures and the conditions as follows: “Falling freight volumes; rapidly decelerating cement production growth (slowing from 11% y/y in November to 7% y/y in December); and outright declines in metal-cutting machinery (-11% y/y in December) and excavator sales (-47% y/y in December), are just a few micro-level reference points painting a picture of an economy battling with falling exports and a challenged real estate sector.”

Mr. Chang, for his part, sees signs that China’s economy is teetering and that ignoring its bubbles (real estate, bank lending, overinvestment in infrastructure, and government debt conditions) equates trouble. He rings the alarm bell loudest on China when it comes to that country’s recent — almost unprecedented — drop in foreign reserves (down nearly $93 billion); a sign that “hot money” (as well as domestic dough) is beating a fast trail out of the country.

Well, today is what EverBank’s Chuck Butler has coined as “Friday’s Jobs Jamboree” a long time ago. The US Labor Department numbers indicated US payroll gains on the order of 243,000 and a general unemployment rate at 8.3%. The upbeat data helped stock index futures immediately and they prompted a bit of a selling spree in precious metals at least initially. Surveyed economists had expected job gains on the order of 120,000 and the overall unemployment rate to come in at 8.5%. For the year just concluded, the US labor market added 1.82 million positions.

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