Some Notable Events That Grabbed My Attention This Week

Some Notable Events That Grabbed My Attention This Week

Gold and silver finally are taking a break from their runs to historic highs.

As of last Friday, the iShares Gold Trust (IAU) was up 33.59% for the year to date. A lot of that return came in a strong run from June through last Friday.

By that point, all gold-related investments were in what the technical analysts call oversold territory. In fact, some gold investments were at record oversold levels.

The gold exchange-traded funds (ETFs) were 14% above their 50-day moving averages and 26% above their 200-day moving averages, according to Bespoke Investment Group.

The run came to an end Tuesday, Aug. 11. The gold ETFs declined by almost 5.5% for the day. That is the biggest one-day loss since April 2013 and only the 11th time there was a daily decline exceeding 5%.

This should be only a pause in the rise of gold. After the almost-steady rise the last two years to the recent record highs, gold was due for a correction.

The fundamental factors pushing gold’s price higher still are in place. Central banks are pumping up money supplies in an attempt to bring about higher inflation, and governments are increasing their spending. There is also a crisis atmosphere around the world, which tends to increase the demand for gold.

Corrections of this kind are more often than not followed by renewed runs to higher prices.

The Hidden Message in Unemployment Claims

Most analysts were optimistic after last week’s unemployment claims were announced.

The number of new unemployment claims declined below one million for the first time in 20 weeks, and the number of people with continuing claims fell below 16 million for the first time in 17 weeks.

That’s all good news, but the media attention on the traditional unemployment claims numbers overlooks some key points.

Congress created new extended forms of unemployment insurance during the pandemic. While fewer people applied for traditional unemployment insurance recently, more people applied for either the Pandemic Emergency Unemployment Compensation or the Short-Term Compensation Program.

While the numbers for traditional unemployment compensation declined, the numbers for the new extended programs held steady or increased in recent weeks. The latest week, though, finally reversed that trend with a sharp drop in the number of people receiving Pandemic Emergency Unemployment Compensation.

Another troubling factor in the employment numbers is the rapid increase in people who initially were laid off, went back to work, and were laid off a second time as growth faltered.

Economists at the Chicago Fed recently said the pandemic is causing a reallocation of jobs. Workers have to move from industries that are adversely affected by the pandemic to those that are less affected. The economists said this reallocation could keep unemployment elevated for two years or longer.

Good News on Dementia, Alzheimer’s

The incidence of dementia and Alzheimer’s disease is declining in the United States and Europe.

Researchers reviewed data from several large studies and found the incidence of both has declined in the last couple of decades.

The risk of developing dementia at some point in life is 13% lower than it was. If the incidence rate continues to decline at the same pace, 15 million fewer people in Europe and the United States will have dementia in a few years than data show now.

The researchers said in 1995 that a 75-year-old man had a 25% probability of developing dementia during the rest of his lifetime. That probability now is down to 18%.

This change came about despite a lack of a cure or effective treatment for either dementia or Alzheimer’s. Some studies have found higher rates of exercise tend to keep the brain healthy and reduce the incidence of dementia. It could be that increased exercise and other environmental and lifestyle factors are curbing these diseases.

The Data

New unemployment claims for the latest week were less than one million for the first time since March 14. New claims for the latest week were 963,000. Continuing claims were 15.5 million, which is a decline of 600,000.

There also was a sharp decline in the number of people receiving claims under the Pandemic Unemployment Assistance program. There was a modest increase in the number of people receiving benefits under the Short-Term Compensation program.

Optimism declined a bit among small business owners in July, according to the Small Business Optimism Index of the National Federation of Independent Business. The index declined to 98.8 from 100.6 in June.

Only three of the 10 components of the index improved in July. Most business owners reported sales were down and weren’t optimistic about sales increases in the next three months.

Inflation is increasing. The Consumer Price Index (CPI) rose 0.6% in July, following a 0.6% increase in June. Over 12 months, the CPI is up 1.0%. Excluding food and energy, the CPI also rose 0.6% in July and was up 1.6% over 12 months.

Wholesale inflation shot higher, according to the Producer Price Index. In July, prices increased 0.6%, compared to a 0.2% decline in June. Over 12 months, the PPI is down 0.4%.

Excluding food and energy, the index increased 0.5% in July and is up 0.3% over 12 months.

Last Friday’s Employment Situation reports indicated that payrolls in July increased by 1.8 million jobs. The unemployment rate declined to 10.2%. That’s a 0.9% drop in one month.

The strongest gains were in the sectors that had been hurt most by the pandemic: leisure and hospitality, government, retail and professional and other business services.

The JOLTS (Job Openings and Labor Turnover Survey) is more detailed than the Employment Situation reports but lags them by a month.

The latest JOLTS report showed that job openings increased in June. Hires for the month were 6.7 million. That’s about 500,000 lower than in May but the second-highest level in the history of the report.

There were modest changes in total job separations, including quits, layoffs and discharges.

Over 12 months, there has been a net employment loss of 8.9 million.

The Markets

The S&P 500 rose 1.60% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 2.96%. The Russell 2000 increased 2.43%. The All-Country World Index (excluding U.S. stocks) added 1.60%. But emerging market equities fell 0.45%.

Long-term treasuries lost 2.63% for the week. Investment-grade bonds declined 0.95%. Treasury Inflation-Protected Securities (TIPS) slid 0.44%, while high-yield bonds dropped 0.86%.

In the currency arena, the U.S. dollar increased 0.60%.

Energy-based commodities lost 0.45%. Broader-based commodities fell 1.68%, while gold declined 6.43%.

Bob’s News & Updates

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