Markit PMIs Show Changing Global Economic Trends; With Comments On Gold’s Possible Rebound

The first part of today’s post will be brief but will link you to a great deal of information.

Markit has been out today and yesterday with a vast amount of monthly economic updates.  The U.S. data is not out as of now.  Here is a LINK which gets you to the country and regional data.

Please look at the data for the BRIC countries:  Brazil, Russia, India, and China.  All PMIs are above 50.  Also, consider Taiwan and Turkey.  Good month, guys (as they say on earnings calls re the quarter).

Now look at the ongoing disaster in much of Europe.  Greece keeps declining, and we must remember that each decline sets a new lower bar.  Then there is the second disaster of Spain.  France and Italy look miserable as well.  Regardless of how the U.S. data comes in, its economic data is suspect given an enlarging quantity of QE and much larger fiscal deficits than my liberal friends and relatives ever accepted from Ronald Reagan or George W. Bush.

The world looks to really be changing.  

How long will the USD and its buddy the euro remain unchallenged as the major global currencies, as demographic and economic trends bring greater power to “emerging” countries?

And as the second part of this post, I want to discuss gold and its more volatile relative silver.

Gold remains money/store of wealth to most people in the world.  Britain and several of its former colonies may be amongst the exceptions.  

The charts are tracing out a 1-2 year corrective phase for gold and silver.  Many commentators incorrectly peg gold as an asset the price of which goes up when people are fearful.  This is of course totally disprovable by pointing to gold’s accelerating path up in price during the manic Bush boom years of last decade.  Gold in USD terms has correlated with the degree to which interest rates are above or below the rate of price changes, defined as one wishes.  It also has correlated with the accumulated Federal deficit.  Silver has correlated closely with gold but with greater volatility.  Both have correlated over many years with oil.  The world may be at some degree of peak gold, perhaps even more than peak oil (there appears to be no shale equivalent for gold miners).  The miserable profit trends for gold mining companies show that gold’s market price is not excessive.

I bring this up now because two bete noires of gold enthusiasts are the not uncommon sharp price declines seen both around FOMC releases and on “jobs Friday”.

Neither has happened, at least so far.

Gold collapsed in the summer of 2011 when A) the world didn’t end when the U.S. was downgraded and the Fed did not institute QE 3, instead opting for Op Twist; and B) the inflation returned to U.S. stocks, which had been left behind by gold’s multi-year surge.

The ratio of the S&P 500 index to the price of gold has moved up from a low not much above 5 during the panic in August 2011 to about 9.  There may be some reversion downward in that ratio soon.

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2 comments to Markit PMIs Show Changing Global Economic Trends; With Comments On Gold’s Possible Rebound

  • D

    All that glitters is not gold, but that’s the way to play it anyway!

  • mak

    Right on “D”…..make money where ever you can but keep gold and silver in your portfolio just in case Henny Penny is right….Oh, and keep your powder dry, as you are probably going to need it to keep your gold.