Gold Attacked This Morning; Why Stanley Druckenmiller Is Wrong; Bond Market Carnage – Eric Dubin
Banksters used the weakness in precious metals to kick the sector down further this morning, with an attack targeting the London P.M. fix price and painting the tape to set the tone for the US equities market open. This is not likely margin selling because margin sellers would not be targeting the London P.M. fix for their trades to cover margin calls. More than 85,000 gold futures contracts worth over $10 billion were dumped to blast gold this morning. This was an outright attack.
TND Market Brief: Eric Dubin
You’ll never hear this on Bloomberg, nor CNBC. Precious metals were kicked down today, because the sector was weak. Ironically enough, bond investors have had their heads handed to them all week, because the market understands that long-term interest rates are going to continue to rise as the multi-decade bull run in bonds is over.
Yesterday, my colleague Dave Kranzler spotlighted Stanley Druckenmiller’s comments on gold (click here). Druckenmiller noted, “I sold all my gold on the night of the election.” Druckenmiller will be proven correct in the short-term simply because most of the conventional finance world responsible for managing the vast majority of money under management in the West operate on the exact same flawed intermediate- and long-term assumptions. Druckenmiller’s interpretation of rising interest rates and their impact on gold has been inculcated over the last few years given the Federal Reserve’s “normalization” song and dance and all the endless periods where gold was under pressure as the Fed threatened to normalize interest rates. In the last few years, we have witnessed the greatest government and banker intervention into credit markets in world history. Bond investors were gleeful to take the other side of the trade when central banks were driving up bond prices, and investors and speculators also appreciated the rising capital gains and the hedge against a deflationary crash bond exposure offered – even bonds that cost money to hold, given negative interest rates. Those dynamics are history, and we have a credit market that will compound the problem of an inflation spiral because we will witness exploding budget deficits as the cost of debt service will become incredibly painful in the United States, Japan and elsewhere.
We will experience rising interest rates, rising inflation and very soon, rising gold. Druckenmiller’s call is only correct in the short-term. Massive fiscal spending is going to surprise the likes of Larry Summers and other policy makers who mistakenly believe the fantasy notion that the United States and many other large economies can borrow trillions of dollars to power infrastructure programs without sending interest rates much, much higher. For more perspective, see:
US Treasuries are getting hit very hard this week. The TLT ETF is a nice proxy to demonstrate the massive shift we are seeing when it comes to expectations for long-term interest rates. The easiest way to explain this in layman’s terms is that longer the maturity duration of a bond, the greater its sensitivity to shifts that have a direct impact on interest rates as investors demand lower priced bonds in order to compensate for the added risk of buying new bonds – thus, bond prices dive, and interest rates rise as expectations shift. This week’s move was massive. Bond markets witnessed over a trillion dollars in losses this week. So much for the traditional safe haven asset class.
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Mr. Dubin is the Managing Editor of TheNewsDoctors.com. He has 25 years of experience as an independent buyside securities and global macro analyst. He has well over a decade of experience as a financial journalist, editor and political analyst. He’s primarily an autodidact, but his formal education includes degrees in economics, international relations and MBA. He welcomes feedback on his articles and will make an effort to respond to comments. Email Eric by sending to “Eric” and then @TheNewsDoctors.com. He can also be “followed” on Facebook: https://www.facebook.com/EricDubin