Since this is among many others, an indicator to the macro funda climate for gold, it is notable that the 30-5 spread is dropping below the 50 day moving averages, putting a would-be bottoming pattern in question for the ratio. Gold tends to be correlated to Treasury yield spreads, rising and falling with them generally.
NFTRH has had to remain bearish (aware of a possible final waterfall that swamps the bottom callers and potentially ends the bear) on the near term price of gold and gold stocks at the risk of being mocked as a contrary indicator. That is not because I am afraid of buying a potential bottom. Long time readers know that I have routinely stepped up to the plate on bottom feeder buying op’s.
But this time, unlike Q4 2008 for example, the funda’s are just not there, no matter how loudly people bullhorn China buying, COMEX shenanigans or Fed/Goldman conspiracies. The yield spread above had been constructive, but now it is joining a chorus of other indicators saying to use caution in the near term and tune out the bottom callers.
The idea remains to be intact first and ready to speculate second.
The ‘Continuum’, AKA NFTRH’s big picture monthly chart of the 30 year yield is now near a limiting point or… a breakthrough to something it has not done for the entirety of the… continuum. The EMA 100 has contained yields over the decades and if it breaks through this time (come on Ben and Janet… taper!) things are going to not be as they have been.
The ‘taper’ chatter is under wraps for the moment with the 10 year yield dropping the last few days and economic data dribbling in less than stellar. Have you heard that US consumer confidence is falling? How about that US home price growth is slowing?
The TNX is sporting a pretty bullish looking pattern as the Fed weighs slowing bond buys soon, whatever that means. Wouldn’t this be an opportune time for people to come flying out of the stock market (much like those fool momo’s in DDD) for a while and into T bonds? Let the heroes at the Fed regain their traction for a bit?
Well, the Fed is in there buying up bonds and manipulating what should be a natural economy on a natural recovery. Hence, they are for now winning the battle against long term Treasury yields. On days like today (strong Chi PMI) and potentially tomorrow (strong ISM??), they are made to look silly; so obviously desperate; so maniacally genius because there never seem to be any repercussions to their actions.
Hence my rantish previous post. It is astounding to me that they have found a tool that actually mutes inflation signals by the act of inflating. Or put another way, in printing money to buy long term bonds, they are keeping yields contained and hence one important measure of inflation expectations. Whatever, all we can do is go along for this monotonous ride and be there when unintended consequences inevitably crop up.
As things stand now, the 10 year targets 2.2% (ish) and the 30 year 3.3% (ish). The red dotted neckline is the decider on that. If it breaks to the upside you can bet we are going to get a heaping helping of Huey, Dooey and Louie blabbing about a “taper” in the media. Just watch.
The 30 year yield is breaking down from a bear flag. The 10 year is doing the same.
 Taking the T bond profit. So a good gain on principle and some dividend coming as well. It’s fine. Take the profit, man! I have to keep reminding myself of that in this market.
TLT (20+ year) was bought due to long term Treasury bond yields having come close to target amid deafening rate (and ‘taper’) hysteria. IEI (3-7 year) was bought to cover a then-bearish rate view on the shorter end. These were added against some bull stock positions.
The chart shows the 30 and 5 year yields still below the breakdown points. I figured I’d collect some income and see how far against the rising yield story we can go.
If the stock market rallies as I suspect it might (SP500 has held the support noted yesterday at the 50 MA’s, Dow is at a support cluster) and yields rise, I’ll sell and collect what profit is left and any income that comes in. But below the 50 MA’s, yields still look vulnerable.