Generational Trend in Precious Metals Tested by US Bonds

No one is talking about the silent 800-pound gorilla in the room that is inching even closer to what seems to be the most notable technical breakdown in our lifetime. And this market is the US 30-year bond.

 

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. Precious metals investors should note that it is important to constantly be monitoring the bond market. The market’s faith in tangible versus paper forms of safety assets is shown in the relationship between bonds and precious metals.

US Bond Market – Recent Developments

For the past six months, the bond market has been pretty quiet. Therefore, from us, it has received only a slight discussion. However, that is not due to us not monitoring it – it is actually quite far from it as we consider this a weekly must-watch market. When a market does move sideways for months, sometimes there is not much to report… that is, until potential near-term price action causes a test critical to multi-decade support level in the market.

Soon enough, the test is to occur.

Let us examine:

Generational Trend in Precious Metals Tested by US Bonds

It can be seen that the US long-term bonds are gradually getting ever so closer to the lower boundary of their rising multi-decade channel (magenta color). Coming in at 137.0 on the 30-year bond price is the lower channel boundary and as of the close this week, the market was finished at 141.7. The bond market was separated from a mere 4.7 points from breaking a generational rising trend.

Precious metals investors should of course, remember that interest rates and bond prices move inversely. Thus, when discussing decades of bond prices rising, we are additionally speaking of decades of falling interest rates.

With rising peaks and rising troughs sequentially forming, this orderly linear channel has created a steady pathway up and has lasted for almost four decades. Ten US presidential terms have come and gone. Iraq and Afghanistan have both been invaded multiple times. Global communications have been taken over by the internet and cell phones. Not to mention, the global credit crisis came and went. All the while, investors had continued to pour money into bonds. Both ceaselessly and relentlessly… for 38 years continuously and still going forward.

Living Standards Impacted by Bond Market

Falling interest rates, coinciding with cheap lending for businesses and governments alike should not be forgotten. The stage was set for the world which we now are able to enjoy and know. Corporate profits all the way to government spending on military, education, roads, and social programs, including one’s own ability to buy homes through low mortgage rates have tied directly or indirectly to the market set price for long-term bonds.

Signs of a Top

Based off of our analysis, all the classic signs that a bond market shows displays that a final top may have already been put into place. Note (chart above) the parabolic blow off curve on top of the upper channel and subsequent failure (blue callout) in 2016 display hallmark signals of an unsustainable momentum topping pattern that the market that has formed.

The next piece of the equation is for a top to form from a technical perspective. This is to see the market breaking past its lower increasing trendline at 137.0.

We see this duplicate technical setup from our past history. From 2008-2011, it occurred during the gold market, as in 2011, the precious metal advanced toward its final top:

Generational Trend in Precious Metals Tested by US Bonds

Even though there was a shorter time period, it can easily be noticed how gold formed an apparent orderly linear rising channel (blue) from 2008 through 2011. In 2011, it then had exceeded in a parabolic curve into the peak,  above $1,900 per ounce. The precious metals market had retreated back into the trend channel from there, to then only break the lower boundary at $1,650 in 2012. In late-2012, following an unsuccessful attempt to recover the trend that had been broken, the bear market for gold ensued which led to the prices taking a fall by nearly 45% by 2015 to $1,045.

Now playing out for the bond market is this same technical setup, just simply on a longer-term timescale. Furthermore, the bond market is many times the size of the gold market, causing more direct ties to the way of life and financing of our government.

Long-Term Bond Top Ramifications

If the bond market breaks its rising 38-year channel and interest rates thus begin to rise in earnest, what will proceed to happen? With all-time record debt levels, how will the government, finance its interest charges? Keep following our analysis, these questions and more remain to be answered.

Following, if the market it desires safety from traditional assets, where will it turn? Where will investors turn in times of market volatility, if bonds begin a new declining trend?

We conclude that as this process plays out, the precious metals market will become a prime beneficiary.

This test for the bond market at the 137.0 level is coming over the next 6-18 months. If bonds solely continue to consolidate sideways, the test will still occur. A breakdown isn’t guaranteed. However, all the classic signs of a long-term top having been put into place are beginning to show up.

In the bond market, a long-term top will be significantly incredible, having major implications for the world governments and US. Let’s continue to watch this silent 800-lb gorilla, begin to approach the boundaries of its generational cage after having sat quietly in the corner of the financial world.


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