Watching The Bond Market
As treasury rates fall once again, it's time to consider once more the Turdville notion that interest rates cannot be allowed to rise. Higher rates accelerate the demise of The Great Ponzi and The Great Ponzi must be maintained. Those expecting a bond "bear market" have been wrong for the first six months of 2014. They'll be wrong for the next six months, too.
Again, why does this matter to gold investors? Because of all possible economic conditions, a world of negative real interest rates is perhaps one of the most precious metal bullish. Why?
The old adage is: Why should I own gold? It doesn't pay a dividend. It's just a piece of metal, a barbarous relic of the past.
Many hedge fund, pension fund and money managers believe this nonsense and are thus only swayed to own gold during periods of inflation and negative real interest rates. Again, what is a negative "real" interest rate?
A "real" rate is the return on investment after adjusting for inflation. A simple example looks like this:
10-year Treasury Note = 3%
Inflation = 4%
"Real" rate of return = -1%
Read more here: http://en.wikipedia.org/wiki/Real_interest_rate
In this scenario, the Keynesian relic of a treasury bond doesn't pay any "real" interest, either. After inflation (and we haven't even mentioned taxes), the adjusted return on your investment is negative. Dat no good. Why not own gold, instead?
Entering 2014, there was all sorts of talk and forecasting based upon higher interest rates this year. Your pal, Turd, stood virtually alone in forecasting lower rates, instead. Why? Well, you can search this site for all sorts of examples but here's just one for background: http://www.tfmetalsreport.com/blog/4786/terminal
Back on 12/31/13, I even re-printed a great article by the original Tyler Durden. Written at the end of 2009 when, similarly, everyone was expecting higher rates in 2010. Now, just as then, the experts are all wrong: http://www.tfmetalsreport.com/blog/5357/123109-all-over-again
Rates on The Long Bond and the 10-year note began 2014 at 3.92% and 3.00%, respectively. Instead of rising according to script, yields began to fall almost immediately, reaching lows of 3.29% and 2.44% on May 28. A selloff in the bond market then ensued and, once again, the bandwagon was loaded with all sorts of sell-side "analysts" again proclaiming that higher rates were just around the corner. And what has happened since? After peaking at 3.44% and 2.66% a little over a week ago, rates this morning are 3.34% and 2.52%.
And now we're at a bit of a crossroads. Take a look at the chart below. A move through and close above 137-05 in The Long Bond will scare the daylights out of all the freshly-added shorts in the market. A further close above 138 will send price back to 139 and yields back to 2014 lows. All of this while every analyst and pundit continues to trumpet "taper" and the end of QE∞. Rrrrriiiigggghhhhtttt....
This morning, I'm also watching the metals very closely. Though another raid attempt was rebuffed earlier, I still expect some serious attempts to weaken price before the end of the week. Just keep an eye on these ranges. Breaking out one way or the other will tell you all you need to know in the short-term.
Gold is still trapped/stuck in this $15 range:
And though silver is stuck, too, it looks far more impressive with it's series of higher lows. Again, this strength is not surprising as silver is ahead of gold at this moment and I like it A LOT:
Finally...As I mentioned yesterday, today's A2A guest had to cancel and reschedule at the last minute. Therefore, today's A2A ay Noon EDT will feature...ME. If you'd like to join in the fun and ask me anything you'd like, you can still register here: https://attendee.gotowebinar.com/register/1194463612257214210
I don't plan to make this a long call as the US-Germany game begins at roughly the same time. I will, however, record and post the call for your listening enjoyment later today.