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 Gold jumped to 3-week highs as expectations of a rate hike
continue to erode ahead of next week's FOMC meeting. The yellow metal has
moved back within striking distance of the $1270 level, where the market was
when the hawkish April FOMC minutes were released.
With the hawkishness of the last several weeks all-but evaporated, it seemed
logical that $1270 would attract. A move through this zone would return
considerable credence to the dominant uptrend that emerged in the wake of the
Fed's December 2015 rate hike; the first in nearly a decade.
The ECB started buying corporate bonds today as part of their broader QE
strategy. I maintain that central banks should not be in the business of
providing financing to corporations, but the ECB and the BoJ seem to have no
such compunction. In fact, the BoJ takes it one step further by buying
shares. Will the ECB cross that line as well at some point?
Germany’s 10-year yield fell to a record low of 0.045%. The yield on U.S.
10-year notes has probed below 1.70% for the first time since early last
year.
Today's U.S. $20 bln 10-year auction U.S. 10-year auction was awarded at
1.702% on a solid 2.70 cover and a record 73.6% indirect bid. Indirect
bidders are entities that purchases Treasuries at auction through intermediaries,
and may include foreign central banks. If I had the choice of buying German
10-year paper with a yield of 0.045% or U.S. paper at 1.702%, I know what
security I would choose.
One thing is clear: The age of easy money is nowhere close to being over, despite
persistent rumblings from the Fed about the desire to "normalize"
policy. And that bodes well for gold.
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