Payrolls Number Disappoints - Risk Off

If you recall one month ago, when we got that abysmal jobs number, gold initially moved lower, only to then rebound with a ferocity that caught market watchers and traders completely off guard. Risk off trades were being slammed on as longs bailed out and bears began pressing the downside. Literally, on the drop of a dime, the entire complexion of the market reversed with the bears running for their lives as new longs entered the fray. The reason - the number was so crappy that everyone just "knew" that the Fed was going to immediately launch the next round of QE. In other words, the more rotten the economic data, the more the risk trades were being put on.

Today, as is becoming the pattern in these screwed up markets, the exact opposite has occured. The payrolls number in this morning's release was horrific. Down went gold, and silver, and nearly the entirety of the commodity complex, along with the equity markets, and up went the Dollar. This time however we are not as of yet getting any sign whatsoever that traders are expecting the Fed to act on the basis of the weak payrolls number. I see no upside reversal at this hour in any of these markets - just more selling pressure.

I am beginning to suspect that we are seeing more and more traders/investors coming around to the view that no matter what one might want to call it, QE, additional liquidity, monetary easing, bond buying programs, etc., none of it is going to do the least bit of good in the medium to long term. In other words, one has to wonder whether or not the bloom is off the rose of Central Bank powers. It seems to me that the CB's are losing the war against the global economic slowdown in the minds of more and more traders. What is even worse ( in the minds of some), is that they are losing their status as the all-powerful demi gods of the finance world.

Again, at the risk of beating a dead horse, the problem is not one of liquidity - there is plenty of that - the problem is too much debt and not enough velocity of money. You can lower interest rates all day long until the cows come home but if people do not want to borrow or are afraid to borrow, what good does it do?

In other words, money is simply not changing hands fast enough. As a matter of fact, this morning the ECRI reported that their future inflation gauge, or USFIG dropped to 101.2 from 102.3 in May. Their comment: "US inflation pressures are clearly in retreat".

This is where the pressure is coming from on the Continous Commodity Index and why the bond market is moving higher and yields lower once again. Until something occurs that will change this "lack of inflation" psyche, upside trending moves in the commodity sector are going to be few and far between for all but that sector which has the strongest set of fundamental factors going for it. Right now, that is the grain sector, but even they are beginning to show some signs of stress due to the larger macro economic picture.

IN this environment, gold is going to perform better than silver as the latter must have an inflationary environment present if it is going to run higher. The Yellow Metal cannot seem to clear the resistance level noted on the chart which just so happens to be the BOTTOM OF THE FORMER TRADING RANGE in April of this year. Until it does, it is range bound at a lower price with solid buying down below $1580 on down to $1550. Only a strong weekly close through the $1630 - $1635 level gives Ol' Yeller a shot at getting some upside fireworks going.

Take a look at the following chart of the commodity complex via the Continuous Commodity Index or CCI. It has made an almost textbook retracement halfway or 50% of the distance from the peak in late February of this year to the recent low in early June, and has now stalled out. If the inflationary psyche does not return, it will move lower towards the 541 level to see if it can garner some buying there. If not, further back down it goes. For the bulls to get anything going, they must take the sector through the 560 level for starters.