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Gold holds near $1,250 after huge jobs-report miss

Widening trade deficit digs deeper hole for 2nd-quarter GDP

After an early charge toward $1,250, gold ended Wednesday flat to modestly lower, near $1,244, as investors await key market-moving events in the coming days.

“The main events for the week with an impact to gold are still on deck: ECB announcement on Thursday and U.S. employment report on Friday,” Jeffrey Wright of H.C. Wainwright told MarketWatch. “A weak (jobs) number on Friday would certainly shore up gold’s position and turn momentum back towards the $1,250-$1,300 range.”

Meanwhile, the European Central Bank is expected to cut interest rates and perhaps even launch a quantitative-easing stimulus program – moves that would potentially boost gold’s appeal in euro terms and pressure other central banks around the world to keep their currencies weak for trade advantages.

But in the meantime, a rash of mostly feeble U.S. economic data released Wednesday continues to belie stock bulls’ pronouncements of a robust recovery. Here are just a few of the numbers:

  • As a precursor to Friday’s crucial nonfarm-payrolls report from the Labor Department, the ADP private-payrolls report fell way short of expectations, at 179,000 jobs, for the lowest print since January. “The job market has yet to break out from the pace of growth that has prevailed over the last three years,” said Mark Zandi of Moody’s.
  • The U.S. trade deficit grew to its largest level since April 2012 for the biggest miss in expectations since October 2008. This report sparked a rush of downgrades to second-quarter GDP forecasts for the U.S.
  • The Federal Reserve’s Beige Book, a collection of anecdotes about the economy published by the Federal Reserve, said the pace of growth picked up in only 2 of its 12 districts —Cleveland and St. Louis, MarketWatch reported. And these two regions had reported slowing growth in the last Beige Book in April. The remainder of the Fed’s districts reported “moderate” or “modest” growth except Kansas City, where there was a decline in activity.

All this mediocre data led CNBC to observe: “Wednesday's swarm of economic news was enough to give plenty of pause to the notion that the U.S. economy is in for a growth surge for the rest of the year. Disappointments in private-sector job growth and exports but an improving climate in the services industries sent conflicting signals. Yet, these are part of a clearer trend: an improving economy, no doubt, but one that seems less likely to meet lofty expectations.”

"Whether this means 2.5% growth or something north of 3% is not obvious, but all of the evidence still points to something closer to the former rather than the latter," Peter Boockvar at The Lindsey Group noted.

And although the following are not official economic datapoints, some grim polls showing the state of middle-class America were released this week.

A poll from CNN/ORC International showed 59% of adults think the American dream has become impossible for most to achieve, up from 54% in a poll conducted in 2006. What’s more, 63% of those surveyed believe most children in the U.S. will grow up to be worse off than their parents. Older Americans were even more pessimistic, with 70% agreeing that kids won’t do as well as their parents, MarketWatch reported.

As for the so-called housing recovery, a new “How Housing Matters Survey” by Hart Research Associates found that more than half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the past three years. Sacrifices included getting a second job, postponing saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools. Meanwhile, at least 15% of American homeowners live in housing markets where the monthly mortgage payment on a median-priced home requires more than 30% of the monthly median household income.

As London’s Financial Times noted, “Tepid U.S. recovery -- it’s the middle class, stupid.” While those who invest in the stock market are seeing huge gains, the middle class continues to struggle. And that bodes ill for the long-term health of the debt-strapped U.S. economy. Until a vibrant middle class returns, gold remains a crucial hedge against the uncertainties that lie ahead. With the price still below $1,300, it’s a bargain not to be missed.

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