Has the Bond Bubble Popped? Interest Rates to Rise? Impact on Gold and Silver?

This Week:

• Negative Interest Rates and Outlawing Cash
• Low Interest Rates Have Boosted the NZ Sharemarket
• Has the Bond Bubble Popped? Interest Rates to Rise? Impact on Gold and Silver?
• Deflation vs Hyperinflation

Prices and Charts

Gold continues to hold above the important 200 day moving average (currently $1803). So we remain in the range above the horizontal support line of around $1775 and below the resistance line at $1925.

Also check out an article on the site this week which takes a more indepth look at many technical and sentiment indicators for gold. While this refers to US Dollar prices, it still has plenty of relevance as the local NZ charts are not too different.

Gold Market Update: “Going Off the Rails”

Silver too has pulled back this week. It is now not too far above the rising blue trendline. This line also coincides with horizontal support at around $25.50. So odds favour any purchase close to that mark being a decent long term bet.

There is also an accompanying silver article worth reading on the website.

Silver Market Update: Despite Downturn, Silver Market Looks Positive

The NZ Dollar has pulled back from the overbought condition of last week. It is getting close to the lower Bollinger band so may not have too much more downside from here. Like the metals the kiwi continues its steady rise of this year.

Negative Interest Rates and Outlawing Cash

Bill Bonner has a sharp wit and equally sharp pen. He made a very good point about Harvard Economist Kenneth Rogoff’s theory on outlawing cash to deter crims and terrorists. Bonner quipped:

“Writing last month in the Wall Street Journal under the headline, “The Sinister Side of Cash,” [Kenneth Rogoff] noted that “paper currency, especially large notes such as the U.S. $100 bill, facilitate crime: racketeering, extortion, money laundering, drug and human trafficking, the corruption of public officials, not to mention terrorism.”

Of course, large notes do make it easier for criminals to operate. Like cellphones. And sunglasses. And automobiles with air-conditioning.”

Classic line we just had to share! This shows these arguments are just a disguise for the main reason for outlawing cash. More control over us.

If you’d like to see a more comprehensive but still elegantly written counter, then check out James Grant’s rebuttal also in the Wall Street Journal. He does an excellent job of pulling apart Rogoff’s arguments for getting rid of cash: Hostage to a Bull Market

But it’s hard not to get the feeling that this is where we are heading. With negative interest rates steadily spreading, this removal of cash is an obvious next step. It enables the central planners to force us to spend, or to tax us for “hoarding”.

Low Interest Rates Have Boosted the NZ Sharemarket

Last week we shared some comments from Kris Sayce at Port Phillip Publishing in Australia on Auckland house prices versus Sydney.

He also thinks record low interest rates here have helped to boost the NZ Sharemarket:

“A victory for New Zealand

Speaking of bubbles brewing… Yesterday, we drew your attention to the New Zealand housing market, and how the median price in Auckland is higher than the media house price in Sydney.

Today, we draw our own attention, and yours, to the unbeatable performance of the S&P/NZX 50 stock index. The chart below shows the relative performance against the Aussie blue chip index, the S&P/ASX 200:

Source: Bloomberg

Click to enlarge

Since 2009, the Kiwi index is up 201%. The Aussie market is up a lowly 69%. The New Zealand market has been less impacted by the resources slowdown.

Despite being a much smaller market, the NZ index has a much broader exposure to varied sectors.

The S&P/ASX 200 index is weighted 27% towards bank stocks. The financial sector as a whole accounts for 36% of the Aussie market. 15% of the Aussie market is in mining stocks.

That’s over half the market in two relatively narrow industries — both of which, incidentally, have performed poorly in recent years.

By contrast, in the NZ market, utilities make up 16% of the market, healthcare accounts for another 16%, and industrials make up 15%.

This perhaps reflects the relative outperformance of the NZ market against the Aussie market.

But, like Australia, you still have to wonder if it’s sustainable. As noted yesterday, NZ interest rates are at a record low. The NZ market has done well. But let’s not be under any illusions that low interest rates have been a big help.”

Continues below

Has the Bond Bubble Popped? Interest Rates to Rise?

But the really big question is how long can these low interest rates remain?

It seems that short term interest rates seem to be getting lower in most places. Or even negative in many.

It would seem to make sense that rates could stay low for a long time yet. As argued in this article: Gold Investors – Get ready for the magnet effect

But while central banks can control short term rates, it is much more difficult to have such an impact on the longer term interest rates (as in 10 to 30 year bond rates).

Last week we noted that US 30 year treasury bond yields may well have bottomed out.

Mega bond investor Jeffrey Gundlach made similar comments this week:

“This is a big, big moment,” Gundlach said during a webcast Thursday. “Interest rates have bottomed. They may not rise in the near term as I’ve talked about for years. But I think it’s the beginning of something and you’re supposed to be defensive.”

…He said both Trump and Democrat Hillary Clinton have advocated more spending on infrastructure, which would add fiscal stimulus to the economy as central bank low- and negative-interest rate policies across developed markets show diminishing returns.

“This idea that fiscal stimulus may be coming seems to be getting sniffed out by the bond market,” Gundlach said. More debt spending may increase the cost of government borrowing by adding supply and making investors demand higher yields, he said.

“People say, ‘How can rates rise?”‘ he said. “That’s how they can rise and they’re sort of rising already.”

Source.

This marketwatch article does a good job of outlining what may well be the early stages of a change in trend for interest rates.

Did the Bond Bubble Just Pop?

Last week, U.S. Treasury prices plunged… pushing yields to their highest level since the end of June. Was it just the beginning of the end of the 35-year bubble in bonds?

Source.

The simple thought is that if interest rates were to rise then that would be negative for gold. Higher yields hurt gold right?

But as we’ve written before, in the 1970’s this is exactly what happened. Interest rates rose alongside gold and silver.

And just very recently we have been witnessing this, with long term interest rates moving higher along with gold and silver prices.

Of course in investment circles this idea of the end of the bond bubble and rising rates has been known as the “widow maker” for good reason. Many have got it wrong so far.

Also it doesn’t mean that interest rates are going to skyrocket higher this month or even this year. But maybe, just maybe this is a start of a trend change.

We have low inflation, record low interest rates and precious metals having been in free fall up until early this year.

So a switch to higher inflation, higher long term interest rates and rising precious metals prices would take most completely by surprise. Perhaps this is what we could see happen though?

HYPERINFLATION VERSUS DEFLATIONARY COLLAPSE

On the website we also have a couple of articles looking at the deflation versus hyperinflation scenarios.

HYPERINFLATION VERSUS DEFLATIONARY COLLAPSE

And in the Gold Market Update: “Going Off the Rails” already mentioned earlier this topic is also examined.

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This Weeks Articles:

“Good Guys” or “Bad Guys”: Who Wins in Coming Monetary Reset Thu, 15 Sep 2016 9:51 AM NZST If you’re not familiar with Bix Weir, he has some really interesting theories. In this interview with Jeff Berwick of Dollar Vigilante he pretty much covers all of them. At some point the current monetary system is certain to change. As you no doubt know, every fiat currency in history has failed. This one will […] Read More…

Janet And Gold: Does History Rhyme? Wed, 14 Sep 2016 4:54 PM NZST We’ve got another helping of Stewart Thomson this week. Apart from his usual comments on the gold, silver and mining index charts, he also has a look at the action in the US Treasury Bond market. He’s not the only one to notice some action there. Is it significant though? See what he reckons… Janet […] Read More…

Silver Market Update: Despite Downturn, Silver Market Looks Positive Wed, 14 Sep 2016 2:21 PM NZST Following on from the gold article posted earlier today: Gold Market Update: “Going Off the Rails”, this is a corresponding article on silver’s current technical indicators. The recent pullback may have already been enough to set silver up for further gains…   Silver Market Update: Despite Downturn, Silver Market Looks Positive Originally published September 5th, 2016 in […] Read More…

Gold Market Update: “Going Off the Rails” Wed, 14 Sep 2016 12:47 PM NZST There is an argument to be made that technical analysis is pointless in these times, where even the most important financial indicator, the “cost” of money (a.k.a. the interest rate) is manipulated. We are sympathetic to this view. However there are still large volumes of money that are invested by following trends. So there is […] Read More…

HYPERINFLATION VERSUS DEFLATIONARY COLLAPSE Mon, 12 Sep 2016 11:06 AM NZST A common argument is what will bring about the end of the current monetary system? Will it be hyperinflation as a result of excess currency creation and a loss of trust? Or will it be a deflationary collapse due to the massive levels of global debt? Darryl Schoon gives his version of events in this […] Read More…

Reminder: Gold Will Rise With Interest Rates Thu, 8 Sep 2016 6:10 PM NZST This Week: SDR Bonds Sold in China – Will the Dollar Live to Die Another Day? When they say ‘hoarding’ instead of ‘saving’ you know you’re in trouble Why Gold Demand Doesn’t Necessarily Correlate with Price Support from Across the Ditch for our Theory on House Prices World’s largest money manager sees inflation ahead Reminder: […] Read More…

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