"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, May 17, 2012

Bonds singing "Anticipation"!

While one day's worth of price action does not a trend make, it is interesting to me watching the combination of price action in both the gold market and in the Treasury market.

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???


  1. Thanks for the observation Dan. Your eyes really are everywhere. I continue to think that the mining shares will be the best purchase ever if one can get them around bottom this time. They will snap right back up at the speed of light. The HUI/Gold ratio will compress not with gold price falling (like the cartel wishes) but with the mining shares rising.

    It is fun to see these Want-to-be-Gods Central Bankers suddenly struggling with the new political developments in Europe. Looks like they just forgot the importance of democracy and elections in Europe!! The last LTRO and the fiscal compact were supposed to be “The” answers to all problems. I guess that they are flying so high in their arrogance that they forgot the ancient but real power of the mobs.

    JP Morgan’s recent loses is just the beginning of the Great OTC Derivative domino fall, which will be recorded in history books as something far worse than the Great Depression. We are at the down of something so big that we can hardly imagine what it will be.

    The absolute greed and arrogance of all these megalomaniac psychopath banksters are the seeds of their downfall, just like they were for the now many extinct European Monarchies...

  2. When you say "IF gold becomes CONVINCED that the Fed is going to act, it will immediately bottom." Supposedly you mean that gold will have bottomed.

    My wacky brain thought you knew something I didn't know [which is likely!] and meant gold will go south and hit bottom.... :)

  3. I wonder why Dr Copper didn't react whereas the PMs did??? perhaps there's an element of safety with markets staring into the gaping jaws of derivative collapse?

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