Unless this turns out to be a double-dip recession and the economy is simply giving us a head fake with recent data, economists will eventually look back and mark this period as the end of the recession that began in 2007.
As I noted in the July 27 article, Summertime Doldrums return as Old Adage Holds True, a number of bullish economists were predicting that last month would be the first this year to show growth in industrial production.
But looking at arguments from both the bulls and the bears, I thought the end of the recession was at least a few months away.
But positive news on housing starts (up 3.6 percent in June; 582,000 vs. consensus
531,000) was the last shred of evidence I needed to convince me otherwise. And I’m not the only one: Based just on jobs data showing a dramatic reduction in new jobless claims and the very recent up-turn in the Ratio of Coincident to Lagging Indicators, Dennis Gartman (thegartmanletter.com) was the first to declare an end to the recession.
To be sure, Dennis has been way out front on this for some time, noting how important these two indicators are, and how reliable they have been in determining the precise ends to previous recessions. If they are to be believed, they have done so again.
So what does this mean for investors?
From an economic standpoint, we will still see bad news aplenty, including an unemployment rate that will continue to rise for some time.
As far as our approach to the markets, the technical end to the recession is also less important than you might think. Trading in stocks and commodities will continue to be exceedingly volatile, as speculation drives them to levels far ahead of the economic data, only to see profit-taking and the occasional dropping-shoe send them hurtling back downward.
For gold and the rest of the metals complex, it will continue to be a case of watching the bouncing dollar. Whatever drives the greenback higher or lower, will push gold quickly and decisively in the other direction.
China Takes the Gold
In the world of gold, China has seized the lead in the two most important categories: supply and demand.
The Middle Kingdom had already captured the title of world’s largest gold producer, thanks to its surging production and South Africa’s tumbling output. But now, according to the World Gold Council, China’s economic recovery has vaulted it to the top rung among gold consumers.
The council notes that gold jewelry demand rose significantly in the first quarter of 2009, while gold demand in India plummeted. This allowed China to overtake its fellow developing juggernaut in terms of gold demand.
Specifically, Chinese gold demand rose from 103.3 tonnes to 105.2 tonnes, in the first quarter, while Indian demand fell 83 percent, from 107.2 tonnes to 17.7 tonnes.
We’ll see if this trend can hold true for the rest of this year, but gold bugs should hope it does not. Last year, India soaked up 650 tonnes of gold, compared to China’s 400 tonnes. While rising Chinese demand is good news, we’ll need India to return to the market to underpin this bull run.