Big Picture Market Perspectives 2/7/17

By Bryan Rich 

February 7, 2017, 4:00pm EST                                                                                 Invest Alongside Billionaires For $297/Qtr

Yesterday we looked at the slide in yields (U.S. market interest rates — the 10-year Treasury yield).  That continued today, in a relatively quiet market.

Let’s take a look at what may be driving it.

If you take a look at the chart below, you can see the moves in yields and gold have been tightly correlated since election night: gold down, yields up.

As markets began pricing in a wave of U.S. growth policies, in a world where negative interest rates were beginning to emerge, the benchmark market-interest-rate in the U.S. shot up and global interest rates followed.  The German 10-year yield swung from negative territory back into positive territory.  Even Japan, the leader of global negative interest rate policy early last year, had a big reversal back into positive territory.

And as growth prospects returned, people dumped gold.  And as you can see in the chart above of the “inverted price of gold,” the rising line represents falling gold prices.
Interestingly, gold has been bouncing pretty aggressively since mid December. Why?  To an extent, it’s pricing in some uncertainty surrounding Trump policies. And that would also explain the slow down and (somewhat) slide in U.S. yields.  In fact, based on that chart above and the gold relationship, it looks like we could see yields back below 2.10%. That would mean a break of the technical support (the yellow line) in this next chart …

Another reason for higher gold, lower yields (i.e. higher bond prices), might be the capital flight in China. Where do you move money if you’re able to get it out in China?  The dollar, U.S. Treasuries, U.S. stocks, Gold.

The data overnight showed the lowest levels reached in the countries $3 trillion currency reserve stash in 6 years.  That, in large part, comes from the Chinese central banks use of reserves to slow the decline of their currency, the yuan. Of course a weakening yuan only inflames U.S. trade rhetoric.

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