Keep Watching The Bond Market

218
Tue, Mar 20, 2012 - 11:21am

The past week has seen some rather sharp selloffs in the U.S. treasury market. Is "Operation Twist" failing? Will we soon see a resumption of overt quantitative easing?

Diligent Turdites will recall that we've been discussing this possibility for months. For me, the key to correctly anticipating the resumption of overt QE is found in watching movements of long-term interest rates. As often stated here, The Federal Reserve cannot allow interest rates to rise. Keeping rates low and funding the federal budget deficit are the two, primary goals of quantitative easing. Therefore, dropping bond prices (higher interest rates) signal that more QE (Fed buying on bonds) is necessary.

Well, what to make of these charts? We know from reviewing the long-term charts of the 10-year and the Long Bond that previous drops in price preceded the announcement of QE1 and QE2. We're almost there again. The 10-year is now perched precariously above the all-important 127.50 level and the Long Bond just had it's initial test-and-hold of support at 135. Note that, prior to these latest drops, the bond and the note had been in rather tight ranges since the Fed began "Operation Twist" in September of last year.

With bond prices being near these critical levels and having gotten there so quickly, we almost have to expect a rally here. The question then becomes: What happens next? I'd expect 127.50 and 135 to hold for a while longer but, if those levels fail, QE3 should be right around the corner. Already, there are some folks out there who think that The Fed will announce QE3 in April or June. https://www.zerohedge.com/contributed/2012-10-05/probability-map-morgan-stanleys-vincent-reinhart-still-says-75-chance-fed-qe3 If rates keep rising, those pundits will be proven correct.

The current beatdown in the metals began inexplicably last evening. Whenever you see gold drop seven or eight bucks, out of the blue, on no news, at 9:00 pm EST, you know that a raid is coming. Lo and behold...we got one. Gold reached all the way down to $1640 overnight and silver touched $32. That the selloffs ended there should be no surprise to anyone as those are currently our two main, short-term support levels. For now, the pressure is off but there's really no reason to get excited just yet. The metals remain in their recent ranges. Gold between $1640 and $1670, silver between $32 and $33. Once the metals pop UP and out of those ranges, the bottoms will be set and we can begin to get excited again. Until then, I'm waiting patiently just in case one more leg down toward $1625 and $31 develops.

I hope you have a fun and stress-free Tuesday. TF

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  218 Comments

DavidSilverSwe
Mar 21, 2012 - 11:01am

time

Time for a little mini rally in the metals? feels like it has been quiet for a time now. We do feel 32 will hold or is that not too strong of a level?

tsedawa
Mar 21, 2012 - 11:03am

too uncaring not to share

been lurking since the watch tower time. but today have to post this as it seems this guy has hit the bull's eye in predicting where the silver price will fly in the very near future.

<iframe width="420" height="315" src="https://www.youtube.com/embed/v3qxYp3Z8Ew" frameborder="0" allowfullscreen></iframe>

Xeno
Mar 21, 2012 - 11:08am

Right On Doc

Right on Dr G.

Even if we believe one group is faultless and pristine, and the other criminal, the blameless one is still an accomplice to the crime of the criminal.

Xeno
Mar 21, 2012 - 11:09am

B v P

Bankers vs. Politicians

Who do you think wins this?

On Now c-span.org channel 3

Bobbejaan Ant
Mar 21, 2012 - 11:13am

@Ant

Quote:
I'll have a further think about the silver. ...<SNIP>... as that insurance policy to get me through a few "Weimar" months of things really go belly up.

I'm in Scotland rather than Aussie, but similar principles apply just about everywhere, so you MAY also find it worthwhile considering UK or Aussie so-called "Junk Silver" for your purposes as this can often be obtained at discounts or low-premiums to spot-price AND would admirably serve as insurance or alternative-currency (in various USEFUL denominations) in "Weimar/SHTF" type scenarios AND should be easily recogniseable/tradable by your locals AND it is much-less-faked than modern silver-coin-issues such as ASE/Britannia/Maple/Kook/etc.

Here's a few Aussie-ebay examples to give you a taste of the sort of things to look for (TIP = Do NOT pay/buy on supposed "Numismatic" qualities ... ONLY on "Pure Bullion" metal-value ... as that way you can still "potentially score" from the "Odd Numismatic Diamond" you may discover amongst the "Rough" bullion you purchase) :-

https://www.ebay.com.au/itm/1946-1963-BULK-LOT-COINS-50-Silver-405gms-/3...

.

https://www.ebay.com.au/itm/1915-1941-BULK-LOT-COINS-92-5-Silver-65gms-/...

.

https://www.ebay.com.au/itm/10-x-Australian-1966-Round-50-Cent-Coins-80-...

https://www.cruzis-coins.com/50c/1966.html

https://www.ebay.com.au/itm/9-X-COINS-1966-ROUND-50-cents-80-SILVER-/200...

.

https://www.ebay.com.au/itm/Australian-Pre-decimal-92-5-SIlver-Florins-x...

.

https://www.ebay.com.au/itm/Australian-Pre-decimal-50-SIlver-Florins-x-6...

.

https://www.ebay.com.au/itm/10-FACE-VALUE-AUSSIE-SILVER-SHILLINGS-X-100-...

.

https://www.ebay.com.au/itm/HALF-KILO-500gms-92-5-STERLING-SILVER-AUSTRA...

.

or "OTHER" Junk :-

https://www.ebay.com.au/itm/2-X-PAGNANI-SOLID-BULLION-SILVER-INGOTS-/320...

https://www.ebay.com.au/itm/2-X-PARLIAMENT-HOUSE-1-OZ-99-9-SILVER-COINS-...

Candygram
Mar 21, 2012 - 11:25am
dudestacker
Mar 21, 2012 - 12:02pm

Stack for the kids

Even if one has to or chooses to stop stacking for oneself, there must be some kids you know w/ b-days, graduations, etc who can use a few ASE's.

Blessed w/ 1st grandchild in 2010. To commemorate his awesomeness, I bought him a 5 oz Apmex bar and a 1/10th oz Year of the Dragon. Both were just about the same price. When he becomes old enough, I thought it would be fun for us to watch how their values waxed and waned relative to each other. Right now, gold is slightly ahead.

And he still has the 2 ASE's I gave him for his first b-day. I shudder when I think of the heap made from all those toys that are either broken, never-did-like, or ignored-for-newer that he got then.

(I remember my Dad commenting {circa 1957} "Consider yourself fortunate. When I was a kid all we had was a sandpile. We used little stones for pigs and big stones for cows. Made fences w/ sticks.")

Obviously we've come too far in our orgiastic materialism. I just hope we don't have to go that far back before we strike a sustainable balance.

Be Prepared
Mar 21, 2012 - 12:30pm

In the Magic World of PufnStuf

.... bad housing numbers are now bad for metals

.... increasing bond interest rates are now bad for metals

.... higher oil prices are now bad for metals

.... knowing USD is fiat and metals are sound money..... priceless!

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