After a report from the U.S. Labor Department that the U.S. economy lost jobs in August for the first time in four years, all indicators now point to an interest rate cut at the next Fed meeting.
The jobs report and the expectation of decreased interest rates ahead sent the U.S. dollar into a tailspin Friday. The U.S. dollar index, which compares the value of the U.S. currency to a basket of six other world currencies, is now at its lowest point in 15 years.
With the concern over the housing market in the U.S. spreading to the financial services industry and ultimately to the job market, the U.S. dollar has once again started on its long-term bear market path. However, this time there was less interest in other world currencies and more interest in gold bullion as a safe alternative to a weak U.S. dollar.
Gold bullion rallied late last week past $700 U.S. per ounce. If you are a regular reader of this column, you know I’ve been expecting this event to occur since the beginning of 2007. But it wasn’t just gold bullion that was up last week, it was the gold stocks that were moving higher. Friday, while the Dow Jones Industrials fell a whopping 249 points, key stocks in the Dow Jones U.S. Gold Mining Index were rallying. All the big players like Barrick, Newmont and Goldcorp experienced significant advances on Friday.
Gold bullion now sits at its highest level since May 2006. The next move for this currency (yes, I call gold a currency), I believe, is a breakout to $750 U.S. per ounce — a move that will take key gold stocks higher in price.
NEWSFLASH — With the expectation that loans to homeowners will fall by 25% next year, Countrywide Financial, the largest U.S. mortgage company, has announced its plans to lay-off 10,000 to 12,000 employees. This is the single largest loss of jobs from one company since the subprime debacle came to light. My opinion: Maybe more job cuts are on their way in the financial and automotive sectors.