Gold and silver both fell some 3% last week despite increasingly bullish technicals and fundamentals. Risk appetite remains high as seen in equity markets onward advance in the face of falling earnings and latent risk. Yesterday gold and silver soared as US stock markets opened and eked out strong gains of 1.8% and over 4% respectively, erasing last week’s losses.
The dollar was marginally lower for the week and fell sharply yesterday. The dollar could be on the verge of the next stage of the dollar bear market after the recent bear market rally. 10 Year Bond prices fell very sharply last week and yield surged by nearly 6% to 3.174%. Yields fell marginally yesterday but remain near recent highs which does not bode well for the dollar. The sheer scale of government debt issuance in the coming months is mind boggling, particularly in the US, and complacency is dangerous in this regard.
Markets will look for guidance from the “stress tests” but some are already skeptical of the value of the exercise and have criticized and dismissed them (such as Warren Buffett). Some see them as little more than another PR exercise that does little to tackle the substantial issue which is the likely insolvency of much of the US banking system.
Buffett warned over the weekend of the reemergence of inflation and this and news of increasing physical demand from mainland China may have led to gold’s surge in prices yesterday. Deflation remains the threat du jour but inflation will in time be seen as the real threat and more astute investors are positioning themselves accordingly.