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Bonds, Dollars & Gold | 15th November 2016

Bonds, Dollars & Gold | 15th November 2016

Bond Market Sells Off While Dollar & Commodities Find Direction

Bond markets are selling off aggressively.  U.S 2 Year bond yields have risen almost 8%… in a single day. (Yields rise when bonds prices fall to attract buyers) Meanwhile the U.S Dollar tests it’s highest  level in almost 2 years which is testing the resolve of commodity traders across the globe. The NASDAQ, S&P 500 and Dow Jones should be rallying on the bond market exit… But gains are lacklustre.  In the deep, dark pool something is moving…

Ok. Just quickly grasp this concept in case you’re not familiar: Bonds refer to holding a bond contract or note (a piece of paper) that y0u pay for. The entity that issues the bond such as the government promises that if you pay money for the bond, they will give you your money back plus an extra amount called a yield. If demand for bonds increase then the issuer of the bond does not need to offer a high yield. But, as bond holders start selling or offloading their bonds, the yield needs to increase to attract buyers… Bond holders usually start selling their bonds when they can find a more attractive option elsewhere such as the stock market.

Currently, as of last week, the bond market is experiencing massive gains in yield as the price of bonds drop and over a trillion dollars of value has been demolished in less than a week. Sound like fun?

Wait till you see it:

bonds

The last time bonds were sold off in this fashion was last year when the debt ceiling was being reached in the United States.  Usually a fall in the bond market means that the money is flowing out of bonds and into the stock market. However, the stock market is barely holding onto gains (The Nasdaq is actually pulling back):

screen-shot-2016-11-15-at-4-44-18-am

Gold and bonds sometimes move in the same direction. That is because when investors are looking for a safe place to store their funds then can place it in gold which pays no dividend or yield, or they can invest in government bonds (little i.o.u’s) which are just as safe as gold ( kidding right?) and also pay a yield. The bond market has been in a bull market for 35 years and many are saying that the ride is over. We’ll have to wait and see how it unfolds leading up to December 14th’s Fed rate decision meeting.

Dollar

The dollar is about to test a major resistance zone which it has not managed to break through twice before:

screen-shot-2016-11-15-at-2-00-43-am

The U.S Dollar is very likely to test the 100.5 DXY level. That could likely push Gold down to the $1200 level. So far gold has been accumulated around the $1211-$1230 range. Many traders are doing so in anticipation of an imminent reversal in the dollar.

screen-shot-2016-11-15-at-2-24-07-am

The support zone  appears to be well support for now. I think that as the Dollar moves up and starts looking like it will break through the channel then Gold will be forced to the lower end of the price box where most traders will just give up. If gold were to head around $1190-$1210 then that would be my ideal entry point around the support zone.

Conclusion

Beneath the surface of the market, something is just off. I would urge caution with the stock market and banks. This trend has potential to reverse aggressively.

With regard to gold and silver I will not be adjusting my positions, but were I in cash, now would be an ideal time for me to enter a trade a around the buffer zone keeping in mind that too tight a stop loss would get triggered around this zone, albeit very briefly I suspect.

The ASX is going to continue to struggle amidst uncertainty surrounding TPP.

Keep your eyes on the bond market. It shouldn’t head much lower than this. If it does, we could be entering a mass funds exodus which would affect everyone, everywhere ( but still positive for gold and commodities.)

P.S … Didn’t I say crude was a bad idea?

P.P.S Is it better to sell into strength or weaknes? Is it better to exit at an oversold or overbought position?

See you around the market.

Patience.

|the Merchant

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