In the long bond, the market has broken into a new all time high. That is significant as it shows that traders there are anticipating an upcoming round of bond purchases attached to a new Federal Reserve round of Quantitative Easing. It seems as if the catalyst for today's surge higher was the Philadelphia Fed business index drop to an unexpected -5.8. Business conditions in that corner of the realm are worsening rather quickly.
Note also that the yield on the Ten Year Note has now fallen solidly BELOW that critical 1.80% level. This is what has traders moving towards action by the Fed. That line is technically signficant, as has been stated before, seeing that we have never had a WEEKLY CLOSE below this level and it is now Thursday! If this yield were to further break below that spike low at 1.696% and the Fed were to NOT ACT, Bernanke would get his place in history all right, but it would not be in the light that he no doubt is hoping for!
All of this appears to be the driver in the nice pop higher in the gold market this morning, continuing the rally that began in Asian trading last evening. A push past $1580 would certainly startle the bears and induce further short covering that has the potential to take the price back to the key $1600 level.
Let's see where the dust settles at the end of the trading session today. For now, it appears that traders are regarding any dose of rotten economic news as increasing the odds of QE sooner rather than later.
If, and this is the big question, IF gold becomes CONVINCED that the Fed is going to act, it will immediately bottom. That is all one needs to know about the gold market. Nothing else will matter at that point.
We are back to picking the petals from Daisy flowers - She loves me; she loves me not. The Fed loves me; the Fed loves me not. Will it do the QE or will it not???