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As the world
awaits the Greek election, there was news today right here in Wonderland:
Treasurys rise after record-setting auction
Our great
nation is selling more bonds (AKA debt) this week to keep itself afloat.
Guess what? Demand was strong for 10 year notes.
Next up, 30
year debt will be peddled on Thursday. With the Fed on the bid, either in
action or in implied waiting, one might expect that to be another bumper day.
"On
Tuesday, the government garnered weak demand at its sale of 3-year notes.
That could have been due to expectations for more Twist from the Fed, which
may entail selling that maturity. That logic would also have lent support for
the 10-year auction, and presumably the long bond sale in the coming
session."
The indisputable
message of this chart is that gold generally goes in alignment with the 30
year/2 year yield spread.
What a world;
all a great and powerful man with a big brain has to do is cannibalize the
unproductive legacy debt of the nation, eating what suits him (long term
bonds) and serving what doesn't to others (short term bonds) in hopes that
they eat the stuff. They are hopped up on deflation fear after all. They'll
eat anything that is 'risk off' after all.
Point is, we have been following the correlation between gold and
the 30-2 spread for many weeks now in NFTRH. The gold correction out of the
hysterical phase of the euro crisis was very normal and indeed, expected. But
the normal correction was then aided and abetted by the Fed's stated
intention of Twisting (AKA 'sanitizing') its monetization of Treasury debt.
Really, how
long can they keep it up? The fact is that whether they Twist again or go for
the good old fashioned straight on monetization, we are off the charts and
officials are just rearranging deck chairs on the Titanic as far as inflation
is concerned. They have been, are and will likely continue to ram inflation
into the pipeline through whatever means suits the agenda in the best way.
It will be
interesting to see if gold obediently maintains the correlation. When the
Twist manipulation scheme was originally cooked up and served in September,
all the over bought metal needed was a shove in a
southerly direction to get it to go with the program. Now, after what would
qualify as a healthy intermediate correction, doing the Twist may not work as
well.
Several
points of analysis point toward this being a pivotal and very interesting
summer; and not in a bearish way either. Real inflators may yet stand up and
be counted instead of hiding behind intricate schemes and half measures.
Watch the gold sector for clues coming out of what could be a volatile June.
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