{"id":22394,"date":"2013-09-18T10:02:34","date_gmt":"2013-09-18T14:02:34","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=22394"},"modified":"2013-09-18T10:12:30","modified_gmt":"2013-09-18T14:12:30","slug":"gold-taper-this","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2013\/09\/gold-taper-this\/","title":{"rendered":"Gold: \"Taper This\""},"content":{"rendered":"<p>The media love to get a hold of buzz words and then give them a spin and a life all their own.\u00a0 Recent examples were the mainstream media's presentation of 'Operation Twist' \u2013 which was simply an official yield curve manipulation designed to sanitize and dampen inflationary signals \u2013 as an inflationary operation, and the 'Fiscal Cliff' drama that sent herds of conventional investors to the sidelines* when they should have been contrarian (and bullish) back in Q4, 2012.<\/p>\n<p>Now we have the media on the job tending the 'Taper' herd.\u00a0 Among the many hyped up implications of 'Taper' according to the media are that it is bearish for gold.\u00a0 But I would put forth not only a rejection of that assertion but just maybe a call for the opposite; a bullish stance on gold in the face of a Fed being coerced by natural movements in the Treasury bond market to talk 'taper'.<\/p>\n<p>As part of its QE operation, the Fed buys long-term Treasury bonds with newly printed money.\u00a0 It does so to try to keep interest rates down so that the economic recovery they have promoted does not fold in on itself, wheeze, roll over and die.\u00a0 They also buy distressed MBS, but this is a story about Treasury bonds.<!--more--><\/p>\n<p>As <a href=\"http:\/\/biiwii.com\/wordpress\/about-nftrh\/\">NFTRH<\/a> noted back in May, long-term interest rates began bottoming (we established targets of 4.2% and 3% on 30 and 10 year yields respectively and were on the rising rates theme long before the word \"taper\" was first uttered by any talking head) and then not coincidentally various Fed members began chattering in the media\u2026 as our latest buzz word was born.\u00a0 Ladies and gentlemen I give you 'T.A.P.E.R!', the latest obsession for casino patrons to analyze to death.<\/p>\n<p><a href=\"http:\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/tyx4.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-13111\" alt=\"tyx\" src=\"\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/tyx4-500x222.png\" width=\"500\" height=\"222\" \/><\/a><\/p>\n<p>Our long-standing target has been 4.2%, below which the 30 year yield now hovers.\u00a0 The red moving average is equivalent to the monthly EMA 100 that NFTRH has used for years in gauging the yield's limitations and hence its implications for the entirety of the macro markets.\u00a0 TYX is fast approaching its decades old limiter.<\/p>\n<p><a href=\"http:\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/tnx4.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-13112\" alt=\"tnx\" src=\"\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/tnx4-500x222.png\" width=\"500\" height=\"222\" \/><\/a><\/p>\n<p>Switching to a monthly view (chart from NFTRH 256) of the 10 year yield, we see that it has registered its 3% target at a potentially limiting moving average.\u00a0 Yesterday's rise in 30 year yields and decline in 10 year yields could simply be a catch up move.<\/p>\n<p>Regardless, our theme here is yields and gold; or more specifically yield <em>relationships<\/em> and gold.\u00a0 Gold tends to rise with a rising yield curve and decline with a declining curve.\u00a0 That is at least in part due to the inflationary signals implied by the curve at any given time.\u00a0 Is there any wonder why the curve dampening effects of Operation Twist and its inflation sanitizing signals attended gold's correction last year?<\/p>\n<p><a href=\"http:\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/30.5.au_.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-13113\" alt=\"30.5.au\" src=\"\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/30.5.au_-500x445.png\" width=\"500\" height=\"445\" \/><\/a><\/p>\n<p>The long term view of the 30-5 spread and gold shows a mostly positive correlation save for a divergence in the 2011-2012 period that not coincidentally featured scores of people knee jerking into gold as a haven from the Euro crisis (as gold blew off) and the famed Operation Twist, which helped put pressure on inflation signals and hence, the yield curve and gold.<\/p>\n<p><a href=\"http:\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/30.5.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-13115\" alt=\"30.5\" src=\"\/\/biiwii.com\/wordpress\/wp-content\/uploads\/2013\/09\/30.5-500x222.png\" width=\"500\" height=\"222\" \/><\/a><\/p>\n<p>Dialing in to the micro term view of the 30-5, we see a potential bottom as longer dated maturities have risen in yield vs. short dated ones over the last couple of weeks.\u00a0 It is early, but a trend change would have to start somewhere.<\/p>\n<p>What do they do when they taper?\u00a0 They buy fewer LONG TERM bonds.\u00a0 What would this do in theory?\u00a0 Put additional pressure on long term interest rates.\u00a0 In reality, I have my doubts and actually hold Treasury bond funds as a 'counter the hype' trade (yields are just about at our targets after all).\u00a0 But in theory a tapering would help put pressure on long yields vs. short yields, whether or not nominal yields are rising.\u00a0 That would theoretically pressure the curve upward.<\/p>\n<p>At the least, 'taper' is hype and neutral where gold is concerned.\u00a0 At most it is another pressure on an upwardly mobile yield curve, which is a driver of gold.<\/p>\n<p>Summing it all up, I'd say that people should just tune out the hysterics and keep their eyes on the various balls that actually matter like the sentiment backdrops in gold, the stock market and especially Treasury bonds.\u00a0 They should watch macro fundamentals like gold vs. commodities and stock markets and they should watch nominal technicals across the board.\u00a0\u00a0 We are doing all of those things and more in <a href=\"http:\/\/biiwii.com\/wordpress\/about-nftrh\/\">NFTRH<\/a>.<\/p>\n<p>Changes are coming to the macro markets and these changes may be symbolized by a group of eggheads meeting this week to render their policy decisions, but in reality their 'decisions' will have little impact on events going forward.\u00a0 It is B\/S detector time folks and it is time to know what analysis is valid and what supposed analysis is just buzz words gone wild.<\/p>\n<p>Any assumption made in the mainstream media between gold and tapering should be questioned and put to the analytical test just as a long line of ill-founded assumptions that came before it should have been.\u00a0 If gold's bull market is over, it is not because hyper-inflationists are not getting the QE they so crave and it not because of decisions that the clerks at FOMC are making this week.\u00a0 Quite the contrary, what is going on in T bonds could argue for the bull\u2019s resumption.<\/p>\n<p><em>* At Thanksgiving last year an extended family member (a financial planner) asked me for my thoughts on the market.\u00a0 \u201cBullish\u201d said I, literally in a one word answer.\u00a0 \u201cREALLY?\u201d asked he\u2026 \"The best fund managers I talk to are in cash right now.\u00a0 They expect a crash in December due to the Fiscal Cliff\".\u00a0 \"Bullish\" said I again.<\/em><\/p>\n<p><a href=\"http:\/\/www.biiwii.com\">Biiwii.com<\/a>, <a href=\"http:\/\/biiwii.com\/wordpress\/about-nftrh\/\">Notes From the Rabbit Hole<\/a>, <a href=\"https:\/\/twitter.com\/intent\/follow?original_referer=http%3A%2F%2Fplatform.twitter.com%2Fwidgets%2Ffollow_button.1379006964.html&amp;region=follow_link&amp;screen_name=BiiwiiNFTRH&amp;tw_p=followbutton&amp;variant=2.0\">Twitter<\/a>, <a href=\"http:\/\/biiwii.com\/wordpress\/free-eletter\/\">Free eLetter<\/a><\/p>\n<p>&nbsp;<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>The media love to get a hold of buzz words and then give them a spin and a life all their own.\u00a0 Recent examples were the mainstream media's presentation of 'Operation Twist' \u2013 which was simply an official yield curve manipulation designed to sanitize and dampen inflationary signals \u2013 as an inflationary operation, and the [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[1840,5298,4273,7948,5092,4785,5217],"class_list":["post-22394","post","type-post","status-publish","format-standard","hentry","category-general","tag-biiwiicom","tag-fed-tapering","tag-gary-tanashian","tag-guest-bloggers","tag-nftrh","tag-notes-from-the-rabbit-hole","tag-taper"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Gold: &quot;Taper This&quot; - INO.com Trader&#039;s Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2013\/09\/gold-taper-this\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta 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