Here’s what gold does when the U.S. government goes on a borrowing binge

The U.S. government is going on a borrowing binge, with the fiscal deficit set to hit $4 trillion this year in the wake of the COVID-19 pandemic. If history is a guide, that should be a positive for gold, a closely followed Wall Street chart watcher noted Thursday.

“What thrives in massive upside changes to Treasury debt outstanding? Gold of course,” wrote Jeff deGraaf, founder of Renaissance Macro.

DeGraaf said a rise in outstanding debt issuance year-over-year tracks very closely to forward returns for gold. The chart shows the average six-month forward return for gold when year-over-year growth in debt issuance hits the 90th percentile is 13%, with the yellow metal rising 79% of the time, or in 39 out of 43 instances, going back to 1984.

“It’s about pace and level, and last time we saw something similar was during the aftermath of 2009 which gave us two solid years of gold performance before the contraction of 2010 portended correctly the cyclical peak,” he wrote.”

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CNBC/Jeff Cox

A record 20.5 million jobs were lost in April as unemployment rate jumps to 14.7%

historic job loss figures reported for april“The impact of the coronavirus-induced economic shutdown tore through the U.S. labor market in April at historic levels, slashing 20.5 million workers from nonfarm payrolls and sending the unemployment rate skyrocketing to 14.7%, the Labor Department reported Friday.

Both numbers easily smashed post-World War II era records and help reflect the profound damage done through efforts used to combat the virus.

Economists surveyed by Dow Jones had been expecting payrolls to shed 21.5 million and the unemployment rate to go to 16%. April’s unemployment rate topped the post-war record 10.8% but was short of the Great Depression high estimated at 24.9%. The financial crisis peak was 10% in October 2009.

The bleak numbers paint a “pretty dismal picture, but April may be it for job losses going forward with the country starting to reopen,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “If there is a silver-lining in today’s dismal jobs report, it is in the realization that the economy cannot possibly get any worse than it is right now.”

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KITCO/Jim Wyckoff

Gold prices show little reaction to staggering U.S. job losses

24 hour spot gold“Gold prices are trading modestly lower in early U.S. dealings Friday, in the immediate aftermath of a record-setting plummet in U.S. non-farm payroll jobs by 20.5 million in just the month of April. The U.S. unemployment rate shot up to 14.7% from only 4.4% in March. The marketplace, including gold and silver, showed little reaction to the dour news because it was fully expected. Weekly U.S. jobless claims reports the past few weeks actually show the U.S. workforce has lost over 30 million jobs in less than two months. June gold futures were last down $4.00 an ounce at $1,721.90. July Comex silver prices were last up $0.20 at $15.795 an ounce.”

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BARRONS/Brian Klein

China Guards the Keys to an Empire of Debt

people on a work site“The coronavirus pandemic is bringing out the best and worst in political leadership. For China, it’s the latter. While first to confront the disease, the government initially failed to inform the global community, preferring instead to hoard supplies and information. By the time authorities gave the World Health Organization access to the country, it was too late. The virus had already spread around the world.

This pattern of official obfuscation also applies to China’s international lending practices. For years, the details of China’s bilateral deals have been closely guarded, including the terms of repayment and collateral required. Now developing countries that were eager for easy money are asking how they can possibly make debt payments amid a public health emergency. They’re not hearing answers.

The Covid-19 outbreak will cripple their economies. And while the Chinese government wants to be seen as taking the lead in the global response to the pandemic, no amount of medical supplies will assuage concerns over economic collapse.”

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