Warning signs in the Bond Market today. For the first time in a decade, part of the U.S. Treasury Yield has inverted. The Ten-Year Treasury now with a two handle.
The spread between the Two-Year and the Ten-Year hitting the narrowest level we have seen since July 2007. And the spread between the five and the three=year, and the spread between the fives and the twos are now inverted.
Yield curve inversions have happened ahead of each of the last seven recessions.
So what does this all mean for the price of Gold?
When rates are at zero for the longest time, borrowers of cheap money are exposed when rates start to increase. Bond bubble? Too early to tell.
Nonetheless, I find it interesting that the Fed Chairman has declared the we are close to neutral in the Fed Fund rate. Meaning we are close to a pause in interest rate hikes.
If the economy is so strong and historically a Fed Fund rate of 5 or 6 percent didn’t cause a problem to the economy, why now all of a sudden are we close to neutral? Does he believe the Fed has over shot the market with their rate hikes?
One Wall Street trader I spoke with early this morning said that’s exactly why many smart Wall Street Gold traders jumped into the Gold Market yesterday when we broke thru the $1,232 spot level.
At the time of this report early Tuesday morning, we see the price of Feb. Gold actively trading at $1,245.30. At this point, this trader told me he feels confident that the price of Gold has still more room to the upside because of the now inverted yield curve.
The question remains, is the Fed reacting to the data in front of them, (which looks to me that the economy is slowing) a one more rate hike in December which is already baked into the market, should stop the Fed from raising any further in 2019.
At this point, I think the Fed Chairmen might be questioning himself. Is another rate hike in December totally necessary? The reason being, if we are heading into a recession this gives him an extra quarter point buffer to work with in the event he has to cut rates in the future.
Have a wonderful Tuesday.
Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.