Gold Daily and Silver Weekly Charts - Another Turn in the Downward Spiral

Gold and silver have broken out, as the weak employment report and the debacle in Europe have renewed 'investors' expectations in additional monetization by the ECB and the Fed. I say 'investors' in quotes because there are no investors anymore, only speculators and gamblers.

However, to say that this may end badly is an understatement.

Intraday commentary on the Non-Farm Payrolls report and the state of the economy is available here. It is not particularly upbeat, but it is not downbeat either. Rather, the forecast is for greater uncertainty, and therefore, risk.

"Efficient market theory is a fraud, and further deregulation is little more than a license to steal. It is no coincidence that the gap between the wealthy few and the public is at levels not seen since the last Great Depression. This is the mark of a very unhealthy kleptocracy based not on merit but on position, power, and payoffs.

The corruption in the system acts like a huge tax on the real economy, diverting resources, labor, and investment away from productive activity and towards monopolies, cartels, and the fraudulent accumulation of wealth through the manipulation of financial assets, making money from money.

There will be no sustainable recovery until there is substantial, genuine reform of the financial and political systems, both of which have been tainted by big money and corporate power promoting a very narrow and self-servingly destructive agenda.

Agree or not, things will continue to get worse, even if in a long, dwindling cycle of decay and despair, until change comes. And it will come, one way or the other. And the longer it takes, the more volatile the outcome."

I am not sure how far they can take the equity markets in expectations of more QE. But at some point, even if it is after that QE arrives, the markets will begin to sell off, slowly at first, as the focus on the candy delights of monetization turn back towards the decline in earnings and median wage, and the malaise that will continue to grip the broader economy.

This *could* be masked by a bout of serious inflation, if not hyperinflation, but I still do not see that actually developing yet, except perhaps as a precipitous series of devaluations and the resetting of the global monetary system, with a commensurate redistribution of paper wealth as occurred in the Soviet Union on its collapse.

But the risks are great, with many exogenous variables, and so any forecast that one can offer is bound to be diminished by uncertainty.

Whatever may happen, there should be little doubt that this generation will be tested in unfamiliar ways, at least to them, but with many analogues and similarities in modern human history.

SP 500 and NDX Futures Daily Charts - Divergence

There was a bit of a divergence between the tech heavy Nasdaq 100 and the more financially weighted SP 500. The stodgy Dow Jones Industrial Average was largely unchanged.

This is indicative of today's market action which was driven by expectations of more monetary stimulus from the Fed and the ECB, feeding into the banks, and trickling down to the real economy.

Intraday commentary on the Non-Farm Payrolls report here.

Once the QE comes, I expect the market to begin selling off as the focus turns once again to slack earnings, weak employment, and more revelations of financial fraud. The elections may provide a temporary diversion, bread and circuses.

Pictures From A Non-Farm Payrolls Report

I did not see anything untoward in any of the factors which I check, including the seasonality adjustment and the birth-death model adjustment.

The unemployment rate is a fairly useless measure, as it continues to improve by dropping people from the labor force. The Labor Participation Rate is much more relevent. This shows a continuing decline to the lowest level in three decades.

The median wage is also a critical indicator too often overlooked.

The bottom line is that the US is continuing in a weak and somewhat fragile recovery following a financial catastrophe of a magnitude not seen since the late 1920's.  The result could have been much worse in the US.   If Hoover's principles had been applied once again to the US economy, things would have been very dark this time around indeed.  People overlook this.  They might still get another chance to see how destructive economic malpractice can be.  Europe may take a run at it.   The UK appears to be willing to have a go.

The current situation is not enhanced by the deadlock in Washington, particularly with the hard line obstructionism in Congress. We may as well call it that, because that is what it is.

Efficient market theory is a fraud, and further deregulation is little more than a license to steal. It is no coincidence that the gap between the wealthy few and the public is at levels not seen since the last Great Depression. This is the mark of a very unhealthy social economy, with a few big winners and lots of losers, a kleptocracy based not on merit but on position, power, and payoffs.  These distortions born of the will to power are always doomed to failure, and sometimes spectacular.

The corruption in the system acts like a huge tax on the real economy, diverting resources, labor, and investment away from productive activity and towards monopolies, cartels, and the fraudulent accumulation of wealth through the manipulation of financial assets, making money from money.

There will be no sustainable recovery until there is substantial, genuine reform of the financial and political systems, both of which have been tainted by big money and corporate power promoting a very narrow and self-servingly destructive agenda.

Agree or not, things will continue to get worse, even if in a long, dwindling cycle of decay and despair, until change comes. And it will come, one way or the other. And the longer it takes, the more volatile the outcome will be.

Sprott Physical Gold Trust *PHYS* Prices At 14.84 - PHYS YTD Performance

This offering will raise between $341,000,000 and $392,000,000 for additional purchases of gold bullion, taking it off the world market.  The final number depends on the actions of the underwriters with regard to their own allotment of 3,450,000 units at roughly 14.84.

The total raised would represent roughly 240,000 ounces of gold at $1740 per ounce.

Sprott Physical Gold Trust Prices Follow-on Offering of Trust Units In An Aggregate Amount of US$341,320,000

Sep 7, 2012

TORONTO, Sept. 7, 2012 /CNW/ - Sprott Physical Gold Trust (the "Trust") (NYSE: PHYS / TSX: PHY.U), a trust created to invest and hold substantially all of its assets in physical gold bullion and managed by Sprott Asset Management LP, announced today that it has priced its follow-on offering of 23,000,000 transferable, redeemable units of the Trust ("Units") at a price of US$14.84 per unit (the "Offering").

As part of the Offering, the Trust has granted the underwriters an over-allotment option to purchase up to 3,450,000 additional Units. The gross proceeds from the Offering will be US$341,320,000 (US$392,518,000 if the underwriters exercise in full the over-allotment option).

The Trust will use the net proceeds of the Offering to acquire physical gold bullion in accordance with the Trust's objective and subject to the Trust's investment and operating restrictions described in the prospectus related to the Offering. Under the trust agreement governing the Trust, the net proceeds of the Offering per unit must be not less than 100% of the most recently calculated net asset value per Unit of the Trust prior to, or upon determination of, pricing of the Offering...

Year-To-Date Comparison of the performance of gold and PHYS.

Year-To-Date Comparison of the performance of GTU and PHYS