Bond yields up, gold and silver up and stocks down

Exciting price moves for silver and gold

Both silver and gold pushed up strongly in the last few days with Thursday the 15^th August being notable as silver moved up 70 cents from 16.50 euro to the 17.20 area. This is hugely interesting because the silver price has been anchored down around the 15.00 euro area for most of the summer and just 2 weeks ago it was down to 14.80 as the Fed issued new commentary regarding tapering. In our opinion this is just an opening salvo from stocks bonds and metals as all three asset classes flash red warning lights over the strength of the US economy and its trajectory minus massive bond purchases from the Federal Reserve.

With positive new jobs data yesterday in the US the market hammered stocks and bonds downward as yields on US treasuries continued to rise. All this while gold and particularly silver had one of their best days of the year in terms of price movement. The talking heads on CNBC and Bloomberg attributed the metals strong performance to disturbances in Egypt where they bothered to note it at all. But it is our belief that the metals strong showing yesterday had nothing do with the middle east and everything to do with the market warning the Federal Reserve not to get off the QE tightrope. If the Fed allows the free market to set the proper interest rates for US debt there is a crisis looming that will make the issues in the Eurozone look like a cakewalk!

Strong evidence is emerging that both China and Japan are backing away from US debt in advance of any tapering from the Federal Reserve. The simple truth here is that without the Federal Reserve persevering in its purchases of mortgage backed securities and money printing there will be scant support for US treasuries at current yields. If the Federal Reserve does taper it risks allowing yields to explode and pushing the US government into a Greek style crisis within 6 months. With yields rising and stocks falling while metals rose this is the market sending out yet another early warning to Bernanke – the US economy, housing, stocks and bonds all depend totally on easy money and near zero interest rates. Without the Fed’s MBS purchases over the last year where would the property market be now in the US? And without a stabilisation in housing who would think there was any strength in the American economy?