"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.


  1. damn good thinking and writing, Dan; Sept is a very dangerous month; grains and beans finally done I think, and as far as pm goes, let them consolidate last 2 months gains all the way into the new year. politics, german elections, imminent pick of whore summers instead of yellen and so on, very sad; best idea of the week is settle down with some grey goose and watch the colts dismember the raiders, 38-3; steve in sparks

  2. as former fan of Balt Colts, disagree on sentiment for raiders game altho no fan of raiders-agree on everything else, particularly on rubin er summers.

  3. That would be: Ze Plane! Ze Plane!

  4. Sheesh, gold's 60 minute chart has that dreaded "Arc of a Diver" pattern which is so common right before an epic plunge.

    GDX/GLD ratio closed under .21 again!!!

    What a horrific sector to invest in.

    I should have stayed in the system, kept all my stocks in the name of the TD Ameritrade, and "Riverboated" my way to riches by trading in and out of the Investor's Business Daily "Glam" stocks which seem to keep going up come hell or high water, LOL....

    1. Agreed Mark, but you need to hedge your positions into rallies using GDX or GLD, for example.
      Hedging keeps you sane. I have a hedge in GDX right now from the 31 supply/overbought area. I added to it on the rallies on the way down. Nothing goes straight up nor straight down. Please learn to hedge buddy.

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  6. TSX up 87 points and DJIA up only 6 points so money isn't going into DOW today. When oil breaks $110 typically investors stay away from energy stocks (remember when stocks got burnt when oil hit $150 a few years back?) so oil price will be interesting to watch. Congress quite possibly won't approve Syria strike so mid-east will heat up and this might be the catalyst to go to gold?? If Syria, Russia and Iran flex their muscles God help us....not a good scenario IMHO.

  7. Fed backed BB Comex Gold shorts back in action same as April, May, June, 50,000 Dec contracts 135+ tonnes in 1 hour on Comex post London PM fix very suspicious as objective is the same trying to shake out the real metal holders. I say BBs are getting close to desperation problem is they have to deliver or cover those shorts. Not much correlation also silver down slightly, oil up suspicious to me, TBTF front running news I suspect?

  8. Turk in his parallel universe has gold in backwardation again; geez, he never gives up; lol lol lol swb in sparks where the wind blew today and finally the Rim Fire smoke is headed outa here; Broncos 27, Ravens 20

  9. @Dan : I think the ma50 is in the 1320 $ area :)
    Can I send you a message in private?, I'd like to ask you a question if you don't mind.

    T.A : I see a support area close to yours, just a bit lower, between 1345 (green support) and 1355 (red support).


    So, as the blue channel and pitchfork were likely to break (too steepy), I was expecting a pullback towards the green channel. If the market chooses the next few days to do so, the support will be strengthened, as it's meeting the red support at the same time in this area of 1350 as well.
    To me, it is the main upwards support of this movement.

    I'll buy in this area as planned, but will Watch out because Under it is a nice cliff for bulls. MACD 9 20 7 already crossed its signal (bearish) on the daily time unit after once more hitting its head against the same horizontal resistance (apparently this resistance has been an excellent indicator for price reversal until now).
    1355 is also the median of the pitchfork on my 2day candle chart. So I'm hoping this area will hold. If not, I'll sell even more of my remaining position.

    1. Hubert du Haut;

      Do you have my private email address?


    2. yes, I think so.
      If you don't receive it today, you can send me at hergastul@gmail.com :)

  10. http://www.kitco.com/charts/popup/hui0030.html What kind of fat finger reverse arse probe have we here... indicating little, signifying much?

    1. This comment has been removed by the author.

    2. The link for the daily HUI didn't copy off the chart on the Kitco home page, the 30 day link is attached to it..
      A daily HUI chart is still there on their home page (in it's little box)until Friday trades start. Has a large spike from about 351 to 358 (corresponding to the open) before spiking back- http://www.kitco.com

  11. The 30 Yr TBond Rate did not follow the 10 year to a new high; I guess it is too early to judge fi this is some kind of non-confirmation. Friday's closing is key. However, if 10 yr closes on Friday above 3% that will sure cause panic with Bond abd Bond Fund Investors, over the weekend.

  12. Dan, are interest rates rising because the economic prospect is improving or because investors are dumping Treasuries? I think it has more to do with the latter than the former. Who wants to be left holding the bag when the buyer of last resort is repeating every day that it is about to leave the party? What this shows is that taper has yet to be fully priced in even if MSM pundits say it is. How will the economic prospect be when the 10 years reaches 3.5% or 4%? And they have not even started tapering yet!!

    After turning slightly positive for 3 days, the GOFO rate has turned negative again (one and two months negative today). This is truly historical and shows that the physical market remains under great stress despite the end of the August delivery month and the fact that the next big delivery month, December, is a long 3 months away from us. I think that we are just doing some consolidation here before resuming the upward move.

  13. The "Economic Boom" is going to start accelerating.

    XLI is only $1 away from world record highs.

    Treasury Yields rising due to increasing demand for credit.

    Commodity Indexes still waffling around, not going anywhere even with oil over $110.

    GDX/GLD ratio still stuck under .21, unable to move any higher.

    Best advice is to stay the course and remain 100% invested in common stocks, and not to worry about the safety of your brokerage account assets as long as it is with a major firm.

    Gold is a late cycle play and it will start picking up steam near the end of the boom, which may be years away.

    1. @Mark, you really think everything is fine? Poland is not the US, nor even an EMU country, but its confiscation of private pension funds is not reassuring in the least. But of course, "it can't happen here," since we have Detroit, Stockton, San Berdu, et al. and that is going fine.

      Treasury yield due to increasing demand? Really? on what planet? Because I don't see the Fed raising rates to cool an hot economy.

      I agree with GDX/GLD or HUI/GOLD being piss poor.

  14. xau and hui charts looking weak to me, but of course I am mostly a skeptic, but I will tell you what and that is that anybody making a more than 24 hour call off of phony Friday employment numbers is looking to lose; Barron's will have a real funny story this week and course it will be spun bullishly, as all the writers now are kids for the most part; take care, off to the camel races in Virginia city; steve in sparks

  15. Steve gold and silver got a headwind today. The jobs report was what skeptics like us suspected. Revisions of 58,000 to 104,000 jobs(imagine if that number had been the one last month and not the 162 thousand they reported) last month shows how much the BLS lie to keep this fantasy economy going. Gold stocks are crap but gold definitely dodged a bullet today and could move back up.

    1. Sorry I meant tailwind not headwind above.

    2. Concord; wonder how much attention to Polish situation is paid by the talking donkeys at lamestreammedia; steve in sparks

  16. Talking about the BLS report, Yahoo just came out with a great table that shows the evolution of the labour participation rates per age group. It contradicts quite eloquently those MSM pundits who pretend that the reduction in the active population rate is due to baby boomers retiring.

    Here Are the Real Labor Force Dropouts

  17. i need my hit/fix of Trader Dan...i cant listen in to the KWN Metals Wrap...first time doesnt work..cant load the page but all the others work..is there any chance Dan you can load it here if indeed it does work for you/others...


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