Gold pushes lower as Japanese yen weakens and the 10-year Treasury pushes 3%

EARLY REPORT

Gold is pushing lower this morning as the 10-year Treasury neared the 3% yield level, commodities dipped lower, and Japan announced policies likely to weaken the yen (and strengthen the dollar). Gold is trading at $1325 early-on and down $11 on the day. Silver is also lower, down 34¢ at $16.78. The U.S. dollar pushed higher against the Japanese yen in overnight trading on comments from central bank head, Haruhiko Kuroda, that Japan will continue a “strong accommodative monetary policy for some time.”

As for the bond market, all eyes will be on the Fed note and bill auctions this week as the Treasury Department looks to place a huge $96 billion in two-, five-, and seven-year notes. A weak response could push the 10-year yield over the 3% barrier and unleash animal spirits in financial markets. TD Securities’ Gennadiy Goldberg told Bloomberg: “There’s a lot of supply coming, which is probably the understatement of the century.” [Emphasis added] The size of this week’s auctions are a reminder that the rapid growth in the U.S. national debt remains a clear and present danger unlikely to go away anytime soon. The U.S. has added $1.275 trillion to the national debt over the past 12 months.

Chart of the Day

Chart note: This chart on the gold price in Japanese yen tells an interesting tale. Japan, we all know, has been caught up in a decades long disinflation, and some would say, a disinflation verging on deflation. Over the past two years though, the price of gold has been on the rise in Japan. In fact, it is up 14.5%. And so you know that this is not some out-of-the-box oddity, since 2005, gold is up 329% in Japanese yen – all during a period when the inflation rate bounced around the 0% level. We have commented on numerous occasions that gold is more than simply an inflation hedge. It is a hedge against disinflation, even deflation, as investors hedge systemic financial risks, currency risks as well as political and geopolitical risks. This chart offers further proof of the assertion.

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