Market Comments

Gold 

Gold closed up 6.11 at $565.26 for a 1.09% increase for the week. Gold’s performance was good. Silver closed at $10.21 up 0.44 cents for a stellar return of 4.5% for the week and a 22-year high .

If you recall from last weeks report we said: "Personally, we favor silver right now." I guess we got lucky. Below is the chart for silver, which is looking sweet as they say. Note the histograms at the bottom right corner of the chart – they have just gone positive.

 

Silver Daily

 

The silver stocks have performed even better, but they are beginning to look a bit extended. We are not buyers at this price level. We will sell into any further increase in the stocks.

Physical silver and gold we do not sell for our own account. If you do trade your physical, we recommend slowly selling into strength, and buying back on weakness. As long as the primary trend is up the profits will steadily increase. Next, we will look at the chart of gold. It too was a good performer for the week.

 

Gold Daily

 

Notice the cluster of prices around the 570 level back in the beginning of February. Gold will soon have to get above this resistance level if its upward rally is to stay alive. We are not of the opinion that gold must make a new high to remain in a strong bull market; however, it must soon make up its mind, which way it goes from here.

We would prefer to see gold correct from here to build a stronger base from which to launch its next move upward. Nevertheless, the market, for whatever the reason, never does what we want it to. It does what it wants – when it wants.

Last week we also said: "The gold stocks outperformed the physical by over 4 to 1 – a good showing. We mentioned last week that we would be watching this ratio closely – we did and it has performed admirably. As of now the charts hint at further upside action towards the old high from January."

Well we got it half right. Physical gold was up as noted for the week. The XAU Index, however, was down –2.39%. For the week, the gold stocks under-performed the metal. This bears very close watching. If the divergence increases, the rally may be nearing its end.

 

XAU Index

 

As the above chart clearly shows, the XAU is below its 50 dma (138.53). The histograms are still negative and the MACD is pointed down. Both, MAY, however, be flattening out, it is a bit early to tell. One or two days do not a trend make. Once again, this bears close watching.

 

Commodities

We are going to keep it brief on commodities and oil, as we want to devote extra attention to the DEBT markets this week. The CRB was up a little over 2 points for the week, an indecisive move at best.

Oil (WTIC) was slightly up for the week – 0.35 cents. Once again, it was an indecisive week. It appears that the geo-political events in Iran, Iraq, and Nigeria are lending support to the price of oil.

If these issues are resolved, we would not be surprised to see the oil price drop. If these events intensify, we would not be surprised to see oil surge upward. Needless, to say – we will not be surprised. For now, we are content to watch from the sidelines.

 

Bonds

Two-year US Treasury yields were up 3 bps to 4.75%. The five-year yields added 7 bps to 4.71%. The 10-year Treasury yields jumped 10 bps to 4.68%, which was the highest yield since June of 2004. The Long-bond rocketed up 13 bps to 4.66%.

The yield curve flattened out by 7 bps for the week. The spread between 2 and 10-year yields is negative 7 bps. Although the yield curve flattened out – the question remains: at what cost?

We have said before that the Fed wants an inverted yield curve with the shorter yields above the long end. The Fed does not want the long bond to fall apart.

As the long bond goes – so goes the real estate market. The real estate debt market has been the source of credit liquidity that is the glue holding the paper house of debt together. If real estate breaks – the house of cards built upon it will break as well.

This is one of the Fed’s biggest nightmares it does not want. We wish them luck. The reason the yield curve flattened is because the long end is rising faster than the yields on the short end of the curve.

Will yields act like water, seeking and finding its own level of balance? With the amount of imbalances within the global financial system, it will be one hell of a balancing act – a wish come true for those at the controls.

We must admit to being doubtful. I hope that we are wrong. Gold and silver seem to think otherwise as well - the true keepers of the temple – resolute and ever watchful. The altering eye that alters all.

Japanese 10-year JGB yields were up 3.5 bps to 1.62%, another high not seen since the summer of 2004. The Nikkei did not like the rise in rates: it fell 2.7% for the week. Rates seem to be starting to rise on a global level. Once again, one week does not make a trend.

M3 money supply surged $54.1 billion to a record $10.335 Trillion, increasing at an 8% annualized rate. At best, it is a record of ill repute. At worst, it is an accident waiting for a time and place to happen. We would not want it on our resume. That is why Ben gets the big bucks.

As they say, a picture is worth a 1000 words. Below are several pictures that tell a story of woe – a story of debt. It explains why the Fed does not want to see the long bond break, nor the real estate market go belly-up.

First is the chart of the money supply. Please note: money is just one part of the paper game of fiat. In the New World Order, credit plays an even larger role than money, not that there is much difference between the two; nor between them and debt. It does illustrate what the Fed does best: inflate. Really, it is about the only option they have: inflate or die.

 

M3 Money Supply

 

We noticed that January’s personal income was up 5.8%, while personal spending was up 6.8%. Perhaps that goes a way to explaining why we do not have a personal savings rate. The chart below is of disposable personal income. The chart below it is household credit debt. Note, which is higher.

 

Disposable Personal Income

 

Household Credit Market Debt Outstanding

 

Unfortunately the credit debt outstanding is considerably higher than disposable income. Makes one wonder how it will be paid off – if it is paid off. Also, makes one wonder who the hell is buying all this debt? The following chart provides a hint.

 

Foreign Held Federal Debt

 

The Inventory of unsold new homes jumped 13,000 to a record 528,000, an unbelievable rise of 40% from January 2004. Such a record must make the Fed feel a bit queasy.

 

Bonded Debt

 

Conclusion

There’s a whole lot of debt floating around – waiting to be paid. It will never be paid, we will be lucky to just service it – pay the interest that is. Gold and silver realize this all to well. The dollar realizes this all too well. The Fed – who knows what they think – if they think.

Recommendation: get out of debt. Get out of paper. Accumulate gold and silver. Only vote for someone in favor of Honest Money – money that is not debt.