Tuesday, January 31, 2012

What do Treasuries know ...

Here's an updated chart of TLT that I posted yesterday:

As you can see TLT made a substantial move higher today and is ready to break to the upside and out of the consolidation triangle that formed over the past few months (see blue arrow).  And looks what's following Treasuries:

This is the Gold ETF (GLD) and it has recently broken thru a multi month downtrend resistance line.

The financial press say that Treasuries rallied today on worse than expected US economic data and fears over Greece and further contagion in the Euro Zone.  I'll agree on investors concerns about Greece but sovereign yields for the entire Euro Zone were off their highs today and even Portugal saw a drop in interest rates.  Italy was down across the whole yield curve.  That's not a sign that contagion is spreading.  And bad data notwithstanding, everyone knows the US is the "nicest looking house in a bad neighborhood".

But Gold continues higher in the face of appreciating Treasury prices!  This state of affairs cannot continue.  Either the Treasury market is right or the Gold market is right.  Normally, I side with the Treasury market when I see these inter market inconsistencies but with lower sovereign yields and a global banking system awash in liquidity (with more to come on Feb,. 29th) I'm going to stick my neck out and say Gold is right on this one and the "risk off" trade is wrong this time.  We shall see ...