With all the ‘taper’ and now, compliments of Janet Yellen’s rambling jawbone, rate hike hysterics, the 30 year ‘long bond’ has held its ground. It could drop a little here and possibly form a bottoming pattern (right side shoulder), but the big picture view does not yet indicate we are in for a hard phase of rising long term interest rates.
Of course the situation is more complex for gold bugs, because it is the relationship between long and short term bond yields that they should be focused on (instead of Crimea and the whacky ‘China demand drop’ stuff).
Unfortunately, people are going to obsess on what they are going to obsess on. There are several fundamental considerations in play for gold, but primary among them is that the long bond’s yield rise in relation to short term bond (like the 2 year shown above) yields for a positive fundamental backdrop to be in place. The opposite structure shows confidence in the financial system (i.e. little stress).
The decline in this ratio (TYX-UST2y) has been ongoing (and a negative divergence to gold as we have noted in NFTRH) for 1.5 months now. Last week it took an impulsive decline as people finally woke up from the Crimea hype. It’s important now to watch the real fundamentals for gold going forward. Not the cartoon stuff you see all over the internet.
