When financial markets sold out this week, commodity prices fell. The culprit has again risen in yields.
On Thursday, the 10-year Treasury rose more than 1.5%. Although they are still in the history of measurement, investors have been concerned about the bullish sentiment. In the last seven months, ten-year interest rates have tripled from 52 percent.
This 10-year chart is a boon for market growth as well as a positive risk in the retail sector. It is more difficult to measure cost-to-earnings ratio in the S&P 500 in an environment of higher interest rates.
As noted, the real interest rate is also a headwind in the precious metals markets. The key word is 'right' - as in after adjusting for inflation. And if inflationary pressures continue to rise, that may be all that is needed to drive real interest rates deep into the negative zone.
The central bank may also be resuming the Twist operation. Under this program, the central bank sells part of its short-term cash and buys long-term bonds. The goal is to reduce the long-term return.
But when central bank governor Jerome Powell spoke Thursday, he did not commit to launching a Twist operation or other intervention to tame the bond market.
At one point, Wall Street could force Powell's hand. Despite the trillion-dollar COVID stimulus and more, the economic recovery is shaken by inflation risk.
The trend prophet and longtime guest here on our podcast Gerald Celente yesterday released a video warning of what he calls 'dragflation':
Gerald Celente: And Powell has not assured investors that central bank governors will keep rising securities and inflation expectations in check. What did we say about inflation? Just six months ago, the term dragflation was coined in the Trends Journal. The economy is contracting and inflation is rising.
Despite the fact that inflation is reflected in oil prices and elsewhere in the economy, gold and silver trading does not reflect that reality and has had a very difficult week.
Which is positive for gold and silver bulls, the shares in mining of precious metals did not gain momentum this week. In fact, the GDX Gold Mining Index showed small gains on Thursday.
If gold and silver stocks continue to show relative strength relative to the broad market average, it will be good for the precious metals.
It's been a few months since the scare company took over Wall Street. But because stocks are vulnerable and bonds may not be a good counterweight, precious metals may seem more to investors than any other asset class.
Bullion traders, including the Money Metals Exchange, have seen price increases over the past few weeks, particularly for silverware. But the attitude among those who trade with the future and products in the stock market is a completely different story.
The paper gold markets have not yet recovered. According to the International Gold Board, mutual funds that monitor gold fell by 2% last month. Global gold assets under control are now at their lowest level since last year in June.
The sudden increase in silver purchases last month has been transferred to mutual funds and other derivatives for some time. But after the silver rush did not reach the price increases, many of the fast hunters at Wall Street Bets were sold out of their positions.
The online chat and the unusual amount of silver trading prompted the Commodity Futures Trading Commission to quickly issue a statement that it is closely monitoring the 'fraud and treatment' market.
Regulators have risen in the air following a widespread campaign by individual investors to buy silver-raised prices for several trading days.
For years, however, the CFTC could not remove fraud and treatment from large institutional retailers in the silver market. In 2013, it completed a five-year investigation into allegations that JPMorgan and other banks own the COMEX silver futures market. The CFTC claimed that no evidence of wrongdoing was found.
The head of the CFTC at the time was Gary Gensler. He has now been elected President Joe Biden as Chairman of the Board of Securities and Exchange. That means it works as usual for the big investment banks on Wall Street.
However, this does not necessarily mean that they keep silver prices lower. The growing industrial demand combined with strong retail purchases will test the supply's ability to sustain.
The strong argument for silver is not based on the 'short squeeze' of the engineering factory in the futures market. Instead, it is based on the fact that silver is lacking due to the greater physical demand. It is based on the assurance that inflation reduces the value of the US dollar and the history of precious metals acting as fixed currencies.
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