US BONDS TESTING GENERATIONAL TREND IN PRECIOUS METALS

October 10, 2018

The silent 800-pound gorilla in the room that no one is talking about is inching ever closer to what will likely be the most significant technical breakdown of our lifetimes. And that market is:  the US 30-year bond. As precious metals investors, it is important to monitor the bond market.  The relationship between precious metals and bonds shows us the market’s faith in tangible versus paper forms of safety assets.

 

 

RECENT DEVELOPMENTS IN THE US BOND MARKET

The bond market has been relatively quiet for the past six months. Therefore, it has received little discussion from us here. However, that is not because we are not monitoring it – far from that, we consider this a must-watch market every week. However, when a market moves sideways for months, there is sometimes little to report… that is, until potential near-term price action causes a market to test a critical multi-decade support level.

 

That test is soon to occur.

 

Let us examine:

 

Note how US long-term bonds are creeping ever closer to the lower boundary of their rising multi-decade channel (magenta color). The lower channel boundary comes in at 137.0 on the 30-year bond price, and as of the close this week the market finished at 141.7. A mere 4.7 points separate the bond market from breaking a generational rising trend.

 

Of course, precious metals investors should remember that bond prices and interest rates move inversely. Thus, when we talk about decades of rising bond prices, we are also talking about decades of falling interest rates.

This orderly linear channel, with rising peaks and rising troughs sequentially forming a steady pathway upward, has lasted incredibly for nearly four decades. Ten US presidential terms have come and gone… multiple times, Iraq and Afghanistan have both been invaded… the internet and cell phones took over global communications… and the global credit crisis came and went… yet all the while, investors continued to pour money into bonds. Ceaselessly, relentlessly… for 38 years (and counting).

 

 

BOND MARKET IMPACTS LIVING STANDARDS

Let us not forget that it has been falling interest rates, coinciding with cheap lending for businesses and governments alike. This set the stage for the world which we now know and enjoy. Everything from corporate profits, to government spending on military, education, roads, and social programs, as well as our very own ability to purchase homes through low mortgage rates, is either directly or indirectly tied to the price that the market sets for long-term bonds.