The entire rally in the precious metals since early June has come against a backdrop of short-term yields rising faster than long-term yields. In other words, it has come against a risk ‘ON’ atmosphere in which there is little anxiety about inflation or systemic stress. That is not favorable for gold.
What has the precious metals rally had going for it? Not the chart above, that’s for sure. It has had gold’s price vs. some commodities (esp. crude oil) and stocks bouncing and that’s a positive. It had the blip in GDP going for it. It also had a massive speculative short covering and long-biased momentum play in silver. It had the usual gold bug touting about geopolitical strife and finally, some bank in Portugal crapping out.
But the chart above is not bullish for gold and it joins the CoT data for gold and especially silver as a negative, which finally manifested to some degree yesterday. Now the idea is to find the buying opportunity. Now it gets fun if yesterday (actually last Thursday, with the big bearish candles on the miners that NFTRH noted) was the start of the periodic games known (around here, anyway) as the Running of the Gold Bugs.
What comes next is a sharper focus on the nature of the fundamental backdrop if/as the sector declines toward some logical support areas. NFTRH? Yes, it’ll be on that job.
Today the 10, 5, 2 yield curve states the obvious… risk OFF.
The curve is also rising, which is a positive for gold and the counter cyclical case in line with gold’s rise vs. stocks, oil, commodities in general and even to a teeny degree, base metals. Now all that is left is silver…
With all yields up and up the most on the short end, the yield curve – taken in the vacuum we’ll call today’s market activity – is telling us 2 things…
1) The market is cheering a strong economic situation with little perceived risk and
2) Is not in a gold-positive stance (unless the China demand and India flood gates opening stories that would put gold in line with positively correlated assets have credibility)
Here’s the monthly view of the 10-2 (at yesterday’s close) with gold faded in the background.
Creeping upward slightly, with yields down. A slight risk-offy tone to it. What we’d to need to really go risk ‘OFF’ and potentially launch gold as well, is for this thing to get off its extreme low and butt launch upward. So far, it’s not happening.
The curve rises again. It has not been a dynamic thing, but longer term yields have been quietly creeping up vs. short term this week. That is a theoretically supportive direction for the precious metals and as long as overall yields are dropping while the curve rises, a hint toward a mini risk ‘OFF’ urge out there.
So James Bullard comes out with the simple truth that the economy is doing well enough to drive unemployment below 6% and inflation above 2%. So he jawbones the market on his projections for interest rate hikes. All well and good.
But the market has a problem with this, given that it is FrankenMarket (hey, it’s 10 years old; the hyperinflation view has changed, but its premise amazingly remains the same) and it was stitched together with inflation and nothing but more of the same will do. Anyway, in the face of Bullard the market has swung risk ‘OFF’ with yields ironically (I guess) dropping. The 10 to 2 year curve is up, with the 5′s messing around in the middle out of sync for whatever reason.
Market participants are nice and comfy as they fly out of short term Treasury instruments, driving yields up harder than long term Treasuries. Risk ‘ON’. The curve is dropping today.
After taking some damage lately (see Short vs. Long Term Yields Rise) the yield curve is bouncing today with players swinging to a risk ‘OFF’ stance with the curve rising and short term yields dropping more than long term yields. I guess yesterday’s inflation fears blew over already? Well, it is FOMC day so it makes sense that the market will self-flagellate as usual before the great and powerful Janet.
Over at Bloomie this morning the yield curve is indicated to be rising, with nominal yields dropping. Unlike yesterday, which was theoretically at least the worst in-day configuration (we continue not to take any one day’s signals in a vacuum) for gold, today’s is probably the best, with yields dropping but the curve rising.
Still, it’s a wax on, wax off, wash-rinse-repeat cycle until direction is chosen by the markets. Here is the view of the 10′s vs. the 2′s at yesterday’s close. Team Rising Yield Curve needs the noted support to hold.
The yield curve is dropping again today while yields rise. We continually go over the implications of the yield curve on the big picture in NFTRH. Insofar as you may have an interest in it, I find this Bloomberg view to be very handy.
The yield curve is dropping today as yields rise. Risk ‘ON’ whereas last week we had a day with all yields dropping and the curve rising, which was risk ‘OFF’. So what’s it mean? It’s a market on an extremely tight wash-rinse-repeat cycle as casino patrons and black boxes alike do-si-do and swing to the left, swing to the right.