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Gold (GLD) and Bonds (TLT) Facing Oblivion
01/31/13 by Matt McAbby
Filed under Bourbon & Bayonets
It’s fast becoming clear to the entire investment community that an end to the 30 year bull market in bonds is at hand (GLD).
We’ve been on this story for some time, calling it early (as we do, unfortunately, all too regularly), and explaining it as a function of a grand rotation into equities that we believe will shortly ballisticize equity markets the world over.
Here in the U.S. we believe the market will be particularly prone to the burgeoning liquidity overflow, leading to American outperformance over the rest of the industrialized world.
In just the last two months we’ve seen evidence that the process is already in play.
Have a look below at the iShares Trust Barclays 20+ Year Treasury Bond ETF (NYSE:TLT), a reasonable proxy of the U.S. long bond, which backed off considerably as the markets began their skyward projection in mid-November.
This chart is the bad news story of the week. Anyone holding TLT, or long term Treasuries, or mid-term Treasuries, or corporates of similar duration – or, indeed, any investment grade fixed income product that’s tied to interest rates – would be wise to review carefully the technical picture above and CASH OUT OF ALL SUCH POSITIONS FORTHWITH.
And we mean it!
Here are the technicals.
First, all but the longest term moving averages have rolled over and are now streaming lower (in red, at top). If and when they’re entirely unwound, the price of TLT will be considerably lower than today, and we’ll likely have a price cap on the stock in the vicinity of the current long term moving average (in yellow) between roughly 118 and 120.
We believe that rollover is inevitable, as price action has been streaming consistently lower since topping in late July at 132, and is now barley holding on to its last line of support at the long term moving average (in blue, on right). Any break below this level could bring the stock as low as 110, the former intermediate bottom, set nearly a year ago in March of 2012.
In addition, both RSI and MACD indicators are pointing toward continued downward pressure on TLT (in black). Since MACD’s dive below her waterline in early December confirmed the RSI plunge two weeks prior, we’ve been categorically bearish on the long bond.
GLD – Get Out and Stay Out
There is no reason for anyone today to be holding any of the above named securities. Consider yourself warned.
And while we’re at it, here’s another warning.
Gold miners have just ascended the gallows. They’re done. Toast. Through. If anyone is still holding out for a quick turnaround here, or is considering purchasing, we say think again.
Here’s the chart:
It’s the Market Vectors Gold Miners ETF (NYSE:GDX), and it’s a complete mess. In just four trading sessions we saw the group retreat by over 10% – and that was against a drop in the price of bullion of just 2.4% over the same four days.
The miners have nothing to hold on to at this point, technically. And bullion is not far behind.
Here’s the chart for bullion, the SPDR Gold Trust (NYSE:GLD):
Our understanding here is as it has been for over a year now. The miners are pacing the way lower for the precious metals, and not the reverse.
A look at the chart shows a particularly troubling development for those in love with the aureate metal. For while bullion has yet to drop in the manner of the diggers, it appears prepped to do so within weeks.
How so?
Look at the descending trend channel, in black, and the bunched moving averages at the far right side of the chart. We’ve circled the whole big mess in blue to illustrate to you that very shortly the upper trend line will cross below the entire set of moving averages, at which point the stock’s price will be locked below formidable resistance.
The only hope for bullion today is to ascend above all its moving averages (it sits today below them all) and the trend channel before the whole, unholy swirling downdraft encompassing it shackles it evermore into a hellish decline.
Here’s a blow-up of the above to illustrate the deal more clearly:
Gold’s freedom is found at GLD 165. Any move that falls short of that level will almost certainly doom the metal to the same fate as her miner brothers.
Watch out.
And play it smart.
Many happy returns,
Matt McAbby
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Featured Comments
Arthur on Thu, 31st Jan 2013 8:28 PM
I think you are dead wrong. All global currencies are printing money. In the history of the world, no fiat currencey was ever successful. The dollar is doomed to collapse. I don’t know when but it will. The US is broke and can never repay 150 Trillion dollars of debt.
Bernanke will keep buying 80 billion dollars of bonds every month. Rates will remain artificially low until the bubble bursts. Thats what makes the stock market–you have your opinion, I have mine. Thanks
harry on Fri, 1st Feb 2013 1:53 PM
You ask my opinion? Gold will rocket very soon!!
When it breaks above 1700 I will buy more.
dave on Fri, 1st Feb 2013 1:54 PM
Anyone stupid enough to be shorting gold and the miners at this point in time will end up going the way of the jp morgans and that ilk that are responsible for manipulating the pm sector lower. It will end in tears for them , with weeping and gnasing of teeth! gold will be 3000.00 per ounce and silver 110.00 per ounce by end 2013!
Rob on Fri, 1st Feb 2013 1:56 PM
It will be interesting to see what happens in the next few months. Opinions are like the wind when blowing in all directions. You relate to “miners” and I see it as exploration and do agree they are in tough times. However there are many producers in the mid range size that are producing for an economically beneficial price compared to the underlying price of gold. I see these companies doing well but will see short term apathy from investors.
Stephen on Fri, 1st Feb 2013 2:03 PM
Yes, but how long will investors realize, they’re just sitting on the sidelines, saying, it’ll pop, it’s a dead cat bounce, in equities?
Bert Warren on Fri, 1st Feb 2013 2:16 PM
You are not thinking long term for gold. The internationmal decision to pay down debt by endless money printing assures the eventual ascention of gold. In fact your very argument relative to bonds supports this eventuality. You may be a good intermediate term trader but your long term forecasting could use some fixing.
Bert
patmateson on Fri, 1st Feb 2013 2:41 PM
what about pimco short duration bond funds……r they to get out of also? thanks!
Dana Fogt on Fri, 1st Feb 2013 2:49 PM
I agree that the GLD will head lower, but there should be a good layer of support between 150 and 158. If that fails, the descending triangle formed from the Sept 2011 top and the lows of Dec 2011 and May 2012 measures down to about 110.
Dana Fogt
Gregg Calkins on Fri, 1st Feb 2013 2:56 PM
I think you write an extremely interesting and informative column. You have a great style and sense of humor. I just wanted to let you know how much I enjoyed it…not in the market now, really broke, but I still read you with pleasure.
Frank on Fri, 1st Feb 2013 3:14 PM
The trend is your friend! I have had conflicting recommmendations on gold from two sources. One is pounding the table saying to buy gold and the miners and Oakshire is saying not so fast. I followed the bullish advice on gold and have lost $$ even though I had read the bearishness here on gold some time ago. I ultimately believe that gold will go ballistic due to all the fiat currencies but now is not the time. Money is rushing into equities and currently not into gold. At some point, the trend will reverse and then watch out! Remember, the Market can remain irrational longer than YOU can remain solvent.
mark on Fri, 1st Feb 2013 9:04 PM
you guys are awesome!
Pawnman on Sun, 3rd Feb 2013 11:15 AM
This from the same guy who said silver will be at 22.50 and gold at 1450.
by end of 2012.
Cjackie on Sun, 3rd Feb 2013 2:01 PM
World/Central Banks have been increasing their gold holdings every year since 2009. My guess a new basket of currencies will replace the Dollar within 4-5 years. China, Russia, and other Middle East countries are already trading oil excluding the Dollar. Gold will become the standard again and it will back the new currency basket. Question will these new players force Gold to $500.00 an ounce or $5,000.00?
GLD will find support at $150.00 within 60 days then ascend to probably $200.00 by year end. Inflation news and higher unemployment will be the catalyst.
Carl on Tue, 5th Feb 2013 12:19 PM
Somehow financial armaggedon was averted last year, investors have been calling for the bond bubble to burst, however good money after bad continues to be printed and will do for the foreseeable, so where to invest…equities? hmm, fine if you’ve been on that trade since december, dont fall for the head-fake, look at the leading indicators, unemployment and inflation!! the macro picture .. nothing has been resolved, most of the western economies are bust, corporate earnings are ascending? The growth model is broken! i wasn’t a gold bug but i am now, load up on the dips, 2000, 3000 who knows. Govt’s globally will eventually try to inflate away their debt, rates will eventually normalise and that will be suicidal politically, publicly and corporately. People look around you at what is happening .. you have your eyes wide shut!! best regards, real asset hunter
Rodd on Tue, 5th Feb 2013 12:25 PM
I agree and have been in global and international equities for the past year. Beginning this year however I have been betting against LT Treasuries, buying TMV. PE’s around the world are historically low, especially if you factor in cash/share and adjust accordingly. The great rotation has begun. Bill Gross was too early and later became confusing with various rants. He was correct, just early. No one ever gets timing right though.
vernon allport on Wed, 13th Feb 2013 2:21 PM
And yet another new high for the IYT. Are you sure you meant short?
Frank on Wed, 13th Feb 2013 5:09 PM
For you doubters out there: “Google” Credit Suisse report The Beginning of the End of an Era. Interesting report.