The Doc & Eric Dubin cover a lot of ground on this week’s show, including:
Doc’s report on physical market trends and our outlook for precious metals
Constructive mining shares & general metals price action despite Friday’s trading
Asian-based physical demand remains strong; shortages are still being reported
The Fed & Treasury starting to lose their grip on the bond market, as free market forces begin to overwhelm manipulation- the bond market may well roll over before Bernanke can get out of Dodge!
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By The Doc & Eric Dubin
Another month has come and gone. We’re glad May is in the rear-view mirror. After April’s cartel attack, precious metals have needed time to heal. But we’re not entirely out of the danger zone. The cartel could attack at anytime, as they appear to have been doing during New York’s Friday morning session — well before the general equities market rolled over, which only added further pressure to the precious metals sector.
Statistically, Fridays have proven to be precious metals downside days ever since the cartel stepped-up their price management efforts last fall. Gold peaked in early October. There have been 35 Friday Comex regular session closings since October 1st. Twenty-five closings have seen prices fall, accounting for just over 71% of the time. (Note: we used Thursday, March 28th data to replace March 29th, when markets were closed for Good Friday). Trading on Fridays has also seen quite a few large percentage decline days during this period.
Given consistent outright physical shortages in Asia, we expected May to have closed marginally higher. This was not to be, and it certainly isn’t surprising to see a “tape painting” hissy fit executed to close out the month. However, there have been multiple failed attempts to crash the market below $22 silver and $1320 gold. Last week we underscored the importance of the cartel’s embarrassing Sunday evening raid and total failure to sucker in more hedge fund shorting. Prices rocket back up on Monday, May 20th. This week, we saw another example of a strong rebound Wednesday and Thursday. Thursday, in fact, was quite telling because the cartel seldom permits strong follow-through and they were simply blown out of the water, with mining shares signaling continued strong accumulation by “smart,” longer-term oriented money and gold slicing through $1400 towards the end of the day like a hot knife through butter.
We continue to believe precious metals will perform reasonably well this summer, with much higher prices coming during the third and fourth quarters. The bottom-line: fundamentals have not changed and globally, physical market demand continues to exceed Western-based paper market selling. With time, paper market pricing will be dragged higher. We can already see the start of an uptrend in gold, and silver is marking time, moving sideways but showing hedge funds have no interest in shorting below $22.
The Bond Market Is Flipping Uncle Ben The Bird
The mainstream consensus appears to believe the world is on the mend and the precious metals bull market is dead. However, a few glitches are starting to appear n the Matrix. The biggest red flag is something we brought to your attention last week: the US long-term bond market is rolling over and yields are on the rise. The trend continues and it’s quite striking.
This shift basically started at the start of May. The rollover in the highly interest rate sensitive utilities sector is also confirming this profound change.
There are only a handful of conclusions one can draw from this data — and Mr. Market is most certainly sending a loud message. US long duration bond yields rise when one or more of the following is happening or will soon happen:
Rising expectations for economic acceleration, along with rising inflation expectations
Insufficient demand for long duration US bonds
Rising expectations of future US dollar weakness in terms of real purchasing power
Reduced confidence in the long-term fiscal and budgetary health of the US economy
Regardless of what’s causing this back-up in rates, each of these possible causal factors are supportive of higher bullion prices. Period. Furthermore, just where do you think all this money in the bond market is going to flow? Investors are desperate for yield. It’s highly likely that at least for the initial phase of rising interest rates, the general equities market will see an increase in demand. For the better part of this entire QE fiesta, hedge funds, investment banks and other “hot money” investors have known all along that betting on declining bond yields during a period where the economy was weak was a reasonable speculation. Afterall, with the Fed backstopping the market, odds of profitable short-term trades were high — no more.
The Federal Reserve and Treasury have been working their tails off to keep the bond market under control. They are losing their grip. Market forces are starting to overpower bond market manipulation. Uncle Ben might be planning his exit this year, but the bond market looks like it’s going to roll over faster than he can skip town. He has lived by manipulation, creating a hollow, so-called recovery. Perhaps manipulation will be his undoing. If bond yields continue to move much higher you can kiss any notion of a sustained housing recovery goodbye. Bank balance sheets will also suffer because the value of the bonds they hold will decline. For the sake of properly recorded history, it would be wonderful to see this pompous ass Fed Chair remain in office just long enough to be held accountable for the market distortions his tenure has created.
On that note, here’s to a warm summer! – Eric Dubin
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