06 October 2015

Gold Daily and Silver Weekly Charts - Slow Bleed in Quiet Times - Treasury Antics

Gold and silver had some nice follow through today, while the dollar showed weakness within a recent trading range.

We have some potential formations on the charts, but so far nothing seems to complete its development and 'work' as we might normally expect.

Let's see if the metals can keep their price rally going.

The Bucket Shop was quiet, and the warehouses continue their slow loss of bullion.

Here is some knowledge from Lee Adler about the short term 'buying panic' in Treasuries that took the yield on the 3 month down to zero.  He suggests it was a case of Primary Dealers with too much cash and too little supply, and I think it has merit.

Basically with the Fed having QE'd the Treasury debt market, and with the Treasury paying down maturities as they play with the debt ceiling, banks had ended up with too much cash and not enough Treasuries on their books.   This may not be a problem for some banks, but for the Banks who are also Primary Dealers that is a slightly different problem.

This can create some distortions in the bills and notes.  It was also exacerbated by the financial sector's end of quarter balance sheet window dressing antics.

I suspect some of the Fed's recent reverse repo activity, in which they loan Treasuries from their inventory to the Primary Dealer Banks in return for a loan of cash with interest (paid to the Banks) might have been related to this.

Certainly there are stresses in the financial sector, and the Fed's lack of conviction in its policy on stimulus versus raising rates doesn't help.  Bubbles are fun when they are on the rise, but having passed their zenith, they can quickly become a source of concern and instability.

Have a pleasant evening.