Editorial: Cracks in US economic juggernaut

Gold bugs had plenty of disturbing macroeconomic news to chew on during the week ended Sept. 15, the 37th trading week of 2007, and almost all of it was broadly bullish for gold.

* There are continued signs that the U.S. labour market is softening, with a disappointing 4,000 jobs dropping from payroll employment in August, and a downward revision of 81,000 for June and July. Jobs in the cyclical industries were especially hard hit, and have shrunk every single month this year, signalling a continued downtrend in U.S. employment growth.

Compounded with contracting corporate profits, shrinking home prices and newly tightened lending practices, the softening employment picture will inevitably lead to lower consumer spending ahead, that in turn, will ratchet down economic growth in the U.S.

All this will lead to the widely expected easing of overnight rates in the U.S. by the Federal Reserve Bank, the anticipation of which was already hitting the greenback and boosting gold and other commodities priced in U.S. dollars.

* The dollar’s woes rippled through the commodities sector, with gold holding strong through the week at 25-year highs well above US$700 per oz., and oil prices hitting all-time highs in nominal terms, with October crude on the New York Mercantile Exchange closing — for the first time ever for a front-month futures contract — above US$80 per barrel on Sept. 13.

At home, the loonie rose more than 2 on the week to close at US97, and it looks set to achieve parity before the year’s out, given continued support from strong oil prices.

* The deep problems revealed in August in North America’s high-risk credit markets are now spreading globally, with U.K. mortgage lender Northern Rock seeing its clients quickly withdraw over 2 billion during the week and another 3 billion over the weekend, owing to concerns over the bank’s stability. Long lines formed outside branches around the country, reminiscent of scenes from the 1930s.

However, by the end of the week, the Bank of England had arranged a rescue package for Northern Rock and was pumping tens of billions of dollars into money markets to contain the financial panic. The moves seemed to work, as did a series of full-page advertisements in U.K. papers with Northern Rock CEO Adam Applegarth insisting the bank was open for “business as usual” and that “we will not let you down.”

* To top it off, the week saw former Federal Reserve Chairman Alan Greenspan release his long-anticipated memoirs, for which he was given an US$8-million advance.

Forsaking the characteristically opaque style he was forced to adopt during his 18 years as head of the Fed, Greenspan — a self-described “lifelong libertarian Republican” — has come out on the attack against his fellow Republicans, whom he writes “deserved to lose” the recent mid-term elections because of their free-spending ways. The Congressional Republicans, he writes, “swapped principle for power. They ended up with neither.”

* Continuing with the big picture, Halifax’s Metals Economics Group released a preliminary estimate of this year’s nonferrous mineral exploration budgets, including uranium, which will “significantly exceed” US$10 billion, up from US$7.5 billion last year, when uranium wasn’t counted. Ignoring uranium, MEG says nonferrous exploration has increased for a fifth consecutive year to roughly US$9.3 to US$9.7 billion, the highest level since MEG began its study series in 1989. Meanwhile, GFMS updated its Gold Survey 2007, recording first-half gold mine production up 3% to 1,201 tonnes (38.6 million oz.). The rise was powered by Indonesian and Chinese gains, which more than offset a 7% decline in South African output.

* Gabriel Resources popped up in the news again, unfortunately, with the surprising announcement that the Romanian Ministry of Environment and Sustainable Development had suspended the review of Gabriel’s environmental impact assessment for its Rosia Montana gold project — a 5,000-page document submitted in 2006.

The suspension was granted owing to a court challenge by local NGO Alburnus Maior and George Soros’s Open Society Institute to the validity of an urbanism certificate that Gabriel describes as wholly unrelated to the EIA process.

Gabriel stock was punished in the markets, as the project will now be delayed yet another three months, at minimum.

Send your Letters-to-the-Editor and other op-ed submissions to the Editor at: tnm@northernminer.com, fax: (416) 510-5137, or 12 Concorde Pl., Suite 800, Toronto, ON M3C 4J2.