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So, this is an inflationary factor. But in the short term, markets don't understand this. So you got a rise in the bond market and it was like a domino effect. Gold rose by about $20. Again, why? Oh, a weak economy means the Fed could cut rates. They think this is a bullish trend for gold. Gold has risen.
Inflation is bullish for gold. That's why this number was bullish for gold. Welcome to today's analysis, where we delve into the intricacies of market dynamics. In this segment, Peter Schiff explores the interesting relationship between inflation and market reaction. As inflationary pressures build, the market's immediate reaction may surprise you.
Stay tuned as we analyze the recent rally in the bond market and the unexpected surge in gold prices. Let's delve into the layers of market perception and its true economic impact. And I want to talk a little bit about what happened today in the economy and in the markets. You know, during the debate, unfortunately, there was very little discussion about the economy.
There was a lot of, you know, nonsense that was actually being discussed. I don't know if that's the right word for the discussion. But I'll talk about reality and then focus on this show. So, first, before the US market opened, we received some weak economic data from Europe. All of these PMI indicators turned out to be weaker than expected.
But then we got the PMI release for the US. This morning, immediately after the market opened, a flat composite indicator for August was released. So at about 9:45 AM Eastern Time we got this release. And indeed, as in the rest of the world, the figure was lower than predicted. The forecast, and I'll just break it down by sector, manufacturing versus services.
So they expected the manufacturing index to come out at 48.8. And he came out at level 47. That's weak. In fact, the range of scores for this indicator ranged from 49 and a half to 47 and a half. And we actually ended up below the lower end of that range. So , this is a weak indicator. And the services sector is also weak, not that weak.
It was supposed to be 52. It turned out to be 51. Now, anything above 50 should expand. So, the services sector is slowly but significantly reducing in production to 47, which I think is the more important of the two sectors. Although the service sector is larger, I think manufacturing is more important.
And I talked about how we have been in a manufacturing recession for a long time. And this is where Joe Biden and Donald Trump have something in common , because both presidents lied about the true state of production. President Trump claimed that he had revived manufacturing and made America great again by restoring our manufacturing prowess.
And now Joe Biden is telling the same lie that we have this renaissance of manufacturing, that it is thriving. And both presidents were dishonest. Manufacturing has deteriorated under both of their presidencies, and it continues to do so as we become more and more dependent on imports. It is foreign factories that produce what we consume, not American factories .
Unfortunately, no one really talked about this in today's debate . And I'll get to that in a minute. I want you to focus on this. So, as soon as this weaker- than-expected data came out , the bond market rallied. Why did the bond market rise? The economy is weak. Well, you know, we already know that.
But this weak economic data comes out, and traders buy bonds because that's what they've been programmed to do. It's like Pavlov and the dog, right? They are salivating at these numbers, and they are reacting. The idea is that: “Oh, the economy is weakening. Oh, the Fed doesn't need to raise rates that much.
You know, the Fed might have to cut back.” How many times will you react to the same set of data? But we got it, and, you know, the bonds were at a minimum. I mean, they were pretty badly beaten. So, I'm sure some of the long or rather short positions in the bond market decided to lock in some profits, and that's probably what caused the move.
But this theory is false. And I discussed it on this podcast. A weak economy is not good for bonds. The idea is that it simply means the Fed will be more lenient, but it simply means inflation will be stronger. The real enemy of bonds is inflation, especially US Treasury bonds, where the risk is not default, but devaluation, depreciation, inflation – this is what reduces the value of the dollar, and this reduces the value of bonds.
Again, too much money chasing too few goods leads to rising prices. Well, if production is falling, what does that tell you about the supply of goods? Well, it falls too. We are not growing as much as we need to. So, you are reducing the number of items available for purchase. This means that commodity prices must rise.
At the same time, if the economy is truly such that the government will eventually run a larger deficit, the Fed will have to monetize that deficit. That is, they won't have to , but they will do it, because if they don't, everything will fall apart. And so we already know that if they have to choose between allowing a financial crisis or any other crisis to happen or printing money, that's exactly what they will do.
They will print money. They'll create inflation because they think it's the lesser of two evils , and they have the ability to use it as, you know, their get-out-of-jail-free card, even though it's not free. It's actually very expensive, but that's what these politicians do. And so a weakening economy leads to a larger deficit.
Ultimately, that leads to a weaker dollar and, you know, more money printing, and you have more unemployed people who are not productive but are taking their unemployment benefits or their savings and trying to buy goods and services that they didn't help create or produce, and you have more money chasing fewer goods.
And that's why it's inflationary. But in the short term, markets don't understand this. So you got a rise in the bond market and it was like a domino effect. Gold rose by about $20. Again, why? Oh, a weak economy means the Fed could cut rates. They think this is a bullish trend for gold. Gold has risen.
Inflation is bullish for gold. That's why this number was bullish for gold, because it means more inflation, not less. It should be bearish for bonds as well, but bond traders don't understand this. But gold rose by about $20. In fact, it's up about another five dollars tonight as I'm doing this podcast.
We are now at about 1920. So this morning we were below 1900. And now we are above that level again. Again, I've said before on this podcast that this is support. Anything below 1900 is a pretty strong buy. So far , anything around 2000 is a pretty good sale. But I think that ultimately it is the resistance at 2000 that will give way, not the support at 1900.
In fact, I think the support is strengthening as the resistance overhead is weakening. So , the gold market has grown. The dollar, you know, did n't move much today , a little surprised by that. The stock market has risen. Er, not very much. We'll see what happens tomorrow. The Nasdaq was once again up all day.
Nvidia, yes, which is, you know, a growth leader or, you know , a symbol of the AI bubble, meanwhile, gold mining stocks are very strong today, with the price of gold high. But again , still trading in a range. I think GDX, GDXJ are up about 3%. The Everything coin is up today, bonds are down, and there is an idea that maybe the Fed won't be as aggressive.
Thank you for joining us for this insightful exploration of market behavior with Peter Schiff. Remember, the world of finance is a complex web of interpretations and reactions. Stay informed, be curious, and stay ahead of the ever-changing economic landscape. Until the next meeting, keep a close eye on the markets and the forces that shape them.
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