In the weeks since the US Treasury sold 3, 10, and 30 year debt securities the bond market has rallied each week.
Here's the weekly data. Looks like a double bottom.
Bear markets don't behave like this. Something is going on.
Let's go to the charts.
GOLD - Daily prices till August 25th
Gold prices have broken. Unless money starts growing again, there is no upside for gold.
As we said back in July, when gold stops going up, so will Fed Funds.
Prudence will require the Fed to keep short rates at these levels for 6 months.
If the Fed knows it's business, it will widen the band for targeting Fed Funds and allow the market to allocate short term rates.
In addition, widening the band will also reduce the volatility of the Money supply.
MONEY SUPPLY - BASE, MZM, M1, M2
We present the data since the end of the last recession.
Monetary Base is growing nicely.
MZM has consistently declined and is still doing so, but still positive.
M1 Moves Into Negative Territory
After flirting with negative growth earlier in the year, M1 has moved into the red this past month.
As long as money doesn't grow, neither will inflation, or gold.
M2 Growing Nicely
M2 is growing at the 4% level
SUMMARY
Gold prices have broken decisively, bonds are making a base, money is under control.
TACTICS
Continue money market arbitrage and carefully add long-term assets as long as a profitable spread can be maintained.
STRATEGY
Hint - but only hint - that the bear market in bonds might be over.
Fed action to control bank lending has succeeded and money is not growing.
Short-term rates will stay high for another 6 months.
The bands on Fed Funds might widen and there will be more volatility in short term rates.
Strengthen the Treasury department and add a board member who's familiar with A/L management.
