“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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


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Friday, January 20, 2012

Ten Year Note Interest Rate Rising

The Ten Year Note Interest Rate has been trading in a range between 1.80 and 2.10 or so for the better part of the last three months. Rates would move higher on improving economic data coming out of the US or China but then retreat on any sour news particularly coming out of Europe.

This week saw rates drop on Monday and stay stagnant on Tuesday but for the remainder of the week, they were on a tear higher. This is attributable to changing sentiment in regards to the global economy, especially in relation to fears surrounding the European debt situation. When traders saw French and Spanish debt finding buyers, they dismissed contagion fears and rapidly shifted from risk aversion trades to risk trades. In other words, they dismissed Deflation concerns and began leaning towards Inflation concerns in association with the tremendous amounts of Central Bank liquidity being supplied to deal with these issues.

Note this chart carefully for it is, in my opinion, a roadmap as to where Silver is headed in particular and to a lesser extent, gold.  There is the POTENTIAL, (please note the emphasis) for rates to have bottomed. If that is indeed the case, then we are going to see strong rallies in Silver and in gold as the inflation trade (RISK ON) will be back in vogue. I would want to see this chart get a WEEKLY CLOSE above 2.25% to feel that we are now leaving the period of low interest rates behind us. Keep in mind that we could still see eruptions out of Europe at any time and that is going to keep traders on edge a bit but if the investing/trading community becomes convinced that we are now past the debt meltdown stage and will be dealing with INFLATION next, then this chart is going to show it.



Certainly, if we get that weekly close above 2.25%, then precious metals should begin to react accordingly as risk capital, that has been on the sidelines begins coming back into both the gold and silver markets.

As always, time will tell. We do not need to be soothsayers or attempt to divine patterns in those silly wave charts to realize that a changing interest rate environment will signal the onset of a new period of investment factors that will have to be adjusted to.

5 comments:

  1. Great writeup Dan. Today I got caught on the wrong side of the silver trade early. Fortunately, I picked up on the fact that the action was more bullish than the usual tug of war, and flipped over to long to have a good day. It was akin to a 1 hour dice shoot at the craps table. What a rush!. I'm now neutral and out for the weekend.

    We need to see gold rip higher now too and really get those cockroaches on the run. Literally every central bank around the globe is pushing monies to prop up their economies. I knew it was only a matter of time before that LMFAO cash the ECB handed out would find it's way to the EU periphery 10 year debt. This is Merkozy's last chance to cling to re-election, not to mention Obama and the Chinese "elections". Global equity markets are tearing higher, and you can be assured that this week's earnings will be "good" too. (I looked at the list).

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  2. Dan, thanks for the continuing commentary. Bought a case of silver eagles Thursday.

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  3. i just do not see how the EU keeps it together.

    since jan 1 they are believing it will.----> print to save the EU instead of print to save the banks after the EU loses greece n portugal.

    dow 24,000..... gold 12,000....gas 12$ it will be if they can

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  4. Great Dan! I was wondering if you could recommend a good site to track the bond market. I don't typically watch this dynamic, but after your recent article, I would like to as I am a silver investor. Thanks for all you do!

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  5. TheGilliom -

    Glad you found this helpful.

    You can check with the CME Group website under their interest rate products to see the ten year and the long bond prices as well as charts to get a handle on where interest rates might be headed. Keep in mind that interest rates will be the inverse of those charts however. In other words, if those charts are showing uptrends, then interest rates are falling. On the flip side, if those charts are turning bearish and are trending or falling lower, then interest rates are on the upswing.

    All the best,

    Dan

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