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Global Economic Plunge, Money Creation & Soaring Gold
Today Mish warned King World News that investors should prepare, “... for a big plunge in economic growth worldwide.” Mish also said that despite the plunge in the global economy, “I expect to see gold breakout to the upside and I think we are starting to see that right now. The same thing is true for silver.”
But first, here is what Mish, who runs the Global Economic Analysis site, had to say regarding the plunge in economic activity: “We are seeing a decline in the global economy. China has slowed down dramatically, so any commodity exporters which export to China are slowing down as well. We’re already seeing this happen in countries like Australia. We are also starting to see the Australian housing market begin to crash."
Mish continues:
“We have seen a plunge in the price of steel, down over 50% from the peak, and one analyst is expecting a further 50% drop in the price of steel. We are seeing problems surface in Italy. Yesterday, reports of the slowdown hit Canada. There was a huge drop in Canadian exports across the entire board.
The decline in exports hit all of the major categories, autos, energy, agriculture, forest products, machinery and equipment products. The overall drop was 3.4%, but there was an even bigger drop of 5% in exports to the US...
“This is consistent with what we have been seeing in the labor markets. Eric, the US recently reported a plus 96,000 jobs, but if you dig deeper into the numbers, in the household survey there was a loss of 119,000 jobs. This was the second consecutive loss of over 119,000 jobs.
Over 500,000 people dropped out of the labor force. These people gave up looking for jobs. We are also seeing tax receipts in California plunge. The US is already in recession. The US Fed surveys even suggest the US is back in recession.
The amazing thing to me is the denial in the mainstream media about what is happening. I would also add that the stock market is not a leading indicator of anything other than sentiment. The same thing happened in 2007, the stock market peaked right as the recession started.
The data in Europe is even worse. There are weak numbers coming out of Spain, Italy, and France. So who is Germany going to export to? They are exporting to the rest of Europe. The idea that Germany was going to escape what is happening to the rest of Europe was always ridiculous.
We are now seeing the perfect trifecta of construction down, services down, and manufacturing down. We have negative reports across the board. It’s going to make unemployment even worse in Germany and the rest of Europe. This will just increase anti-euro sentiment.
Europe’s problems are structural in nature, and this is why none of Mario Draghi’s fixes are not going to work. In Europe and the US they are acting like more monetary stimulus is going to fix these problems. How can it, Eric?”
Mish had this to say regarding gold: “I think that gold is about ready to blast higher. Now, the Fed has managed to stoke the stock market as well as inflate the corporate bond market. These companies, which were primed to go bankrupt, keep borrowing more and more money just to stay afloat.
But they are not doing any more hiring, and Bernanke is puzzled over this. Well, he’s puzzled over pushing on a string because people are still saddled with debt. Students are graduating with debt, but they are still unable to get jobs, so they are simply moving back home.
But Bernanke has ignited a rally in gold from around $800, to over $1,700 now. And we’ve seen the same thing in silver. We’ve also seen this in energy and food. But other commodities such as steel have plunged. This will impact the economies of exporting nations such as Australia and Canada very badly.
The bottom line is the monetary printing is out there and gold is going to be the big beneficiary, and possibly silver as well. The chart of gold is beautiful. We have seen a perfect consolidation wedge forming for about a little over a year now.
I expect to see gold breakout to the upside and I think we are starting to see that right now. The same thing is true for silver. Where do people turn when global central banks across the board print. This big lift in gold recently has been because of what they are doing in the ECB.
Gold had gotten a bit ahead of itself a year ago at $1,900, and tried to hold its own, dropping into the $1,500s, as Europe was engaged in austerity. But now that Mario Draghi has come out and essentially said we are going to offer unlimited printing, the gold market has responded by advancing.
God only knows what we are going to see from China. I expect all of the central banks to push on the string once more, but I don’t expect to see any job creation as a result of that. Investors don’t realize that we are in a global recession, but they will shortly.
When central bankers step their foot on the accelerator this time, what’s going to happen? They are going to force up the price of gold and food, and it’s going to be counterproductive. The stock market will go down, and, regardless of what they do, all of these factors line-up for a big plunge in economic growth worldwide.”