Just as every coin has two sides, every data point that doesn’t meet expectations usually has an upside somewhere. For instance, although the gold price has fallen with the strengthening U.S. dollar, the yellow metal is appreciating in Japanese yen. So when negative news about the economy came out this week, along with the U.S. Labor Department reporting that the country added only 88,000 jobs in March, investors found reasons to be encouraged.
For one, the Federal Reserve is apt to maintain its stimulative easing course and keep interest rates low. With inflation above the current interest rate, a negative real interest rate increases the attractiveness of U.S. dividend-yielding stocks and gold. I believe both investments will continue to be viewed as the safe havens of the world.
The news that the U.S. is not recovering as expected may also repair some of the damage done to gold by research firm Societe Generale. Its bearish report asserted that because of expected rising interest rates, a strengthening U.S. dollar and a recovery in housing and jobs, gold’s bull-run would end.
The ongoing European debt saga will likely drive gold as well. Many people, including CNBC’s Amanda Drury, have been asking me why gold did not respond on news of the seizure of bank deposits in Cyprus. Going back more than four decades, the yellow metal historically has experienced a seasonal drop this time of year, yet today’s trading behavior does not reflect the fearful conditions ideal for a gold rally.
As a result of this perplexing situation, some highly respected gold experts have tossed around the idea that the price of gold may be manipulated. Mineweb’s Lawrie Williams writes that when the European markets open, gold and silver fall, but climb when the U.S. market opens. This is “a pattern directly contrary to that which had been seen pre-Cyprus,” suggesting that the precious metal “needs to be kept in its place more than ever lest a move into it by the big bank deposit holders really precipitates banking Armageddon.”