"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, September 5, 2013

Ten Year Treasury Closing in on 3% Yield

First of all, apologies for not being able to post this week. The vagaries in the grain markets have been making me old before my time. Then again, the volatility in most nearly anything that resembles a commodity futures market these days is becoming almost unbearable at times. There is simply too much hot money moving into and out of markets on the drop of a dime for traders to get much in the way of rest.

There are two nasty habits that I have developed over the years - one is eating; the other is sleeping. I figure if I could give up both of those, I would have more spare time on my hands than I knew what to do with. It seems I am working on giving up the latter with the markets acting in the manner in which they have of late.

A quick comment in passing - gold has surrendered its "Syria" premium. I warned of this in some posts last week. Buying gold based on geopolitical fears always requires one to be very nimble and very quick as a trader because the events can change so rapidly that gains oftentimes prove quite effervescent.

Mr. Obama's buffoonish handling of this entire matter has resulted in any fears of imminent missile attacks being quickly surrendered. Most traders are now taking a wait and see attitude. With Russia's President Putin forcefully resisting any US action, many are thinking that the crisis is going to simply fade away for the immediate future. Personally I never thought I would live to see the day in which I put more confidence in Russia's President than I did in my own nation's President.

Also, the more I learn about the nature of these so-called "moderate reformers"  as our imperious leaders are dubbing them, the less I like them. Say what you will about Assad, Christian churches and individuals were generally safe under his reign. The "moderate reformers" are now butchering them. And we are supposed to be siding with them??? What kind of idiocy is that?

What this means to gold traders is that we are back to focusing on other drivers for the price of gold. That brings me to interest rates. One of the biggest headwinds that gold is facing is rising interest rates in the US. Those are coming on the heels of what many seem to feel is improving US economic data. That is translating to more of "THE TAPER". Some of you might not be old enough to remember a fun television show years ago called "Fantasy Island".

In the opening to the show each week, the little fellow ( I think his name was Tatoo or something) used to be shown looking up into the sky and shouting out the phrase, "THE PLANE, THE PLANE". Or as it is better pronounced, "DEE PLANE, DEE PLANE"!

That is what this tapering talk reminds me of. Everyone is looking around waiting for the various economic data releases and when they get them, they immediately cry out, "DEE TAPER, DEE TAPER".

Thus when we get friendly economic news, interest rates push higher as Treasuries get sold. That drives the Dollar higher on the crosses and puts pressure on the gold market. Remember, outside of the gold community, many investors view gold as a non-interest bearing asset. Thus in a rising interest rate environment, one in which real rates are not negative, gold tends to experience selling pressure. Again, I am not advocating anything here - I am merely stating the sentiment of many large investors. Gold traders need to understand this.

That being said, take a look at the following chart of the Ten Year Treasury Note. It just missed hitting the 3% mark by less than 20 basis points today! Yields have not been at this level since July 2011, more than two years ago!

This is some of the reason that gold is getting sold down today. Additionally, technical factors such as its inability to hold above $1400 are bringing in long liquidation and some fresh shorting. Shorts began hunting for stops below $1380 in the December and got them. That is bringing in more selling as stale longs are bailing out and fresh shorts are moving in.

Now that $1380 has fallen, the next level of chart support comes in at the 50 day moving average down near the $1360 - $1355 level. Bulls need to either hold it there or to quickly take it back up through $1400 to show their mettle.

Weakness in the mining shares has also been working to undermine gold as the HUI failed to extend past a strong chart resistance level near 280.

Just be prepared for more volatility as the market reacts to each and every bit of economic data/geopolitical events. No one ever said trading was easy; if it was, all of us would be busy counting our coconuts on our personal S. Pacific island.