This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Global Macro: Rates Bring Down Gold

NEW YORK ( TheStreet) -- The rising U.S. yield curve and the diminishing price of gold is an intermarket relationship that has had a strong correlation the past few months.

The goal of quantitative easing was to lower both short term and long term rates in order to stimulate investment and deter saving. The plan went along smoothly until whispers of an end to the Federal Reserve's bond buying program surfaced in May.

The yield curve has since spiked higher off of its lows and started an uptrend, leaving the carnage of the long bond in its path.

The chart below is of iShares Barclays 1-3 Year Treasury Bond (SHY) over iShares Barclays 20+ Year Treasury Bond (TLT). This pair is a graphical representation of the U.S. yield curve. As the pair moves higher, long dated bonds underperform shorter term bonds leading to a quicker rise in long term yields.

As an end to quantitative easing has become a reality this pair has normalized and traded at elevated levels justified by economic data.

The U.S. economic recovery remains gradual, but the outlook continues to improve which means an eventual end to accommodative policy.

The next chart is of SPDR Gold Shares (GLD) over CurrencyShares Swiss Franc Trust (FXF). The U.S. dollar has been weakening although rates have been on the rise. This divergence causes measuring the strength of gold relative to the dollar an unrepresentative measurement of its absolute value. For this reason gold will be priced in Swiss francs in the chart below.

The chart looks very similar to the actual price movement of gold, but the stability of the franc allows for absolute value and the identification of trend pivots to be seen more clearly.

Rising rates have weighed on the value of gold. Gold caught a bid in the early 2000's as the Fed moved towards a weak dollar policy.

Rates fell alongside the dollar's deterioration. As the market begins pricing in an end to central bank intervention and a normalized yield curve, gold has sold off.

Watch for increasing rates leading up to September to push gold down from its current levels at the top of its downward channel.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
GLD $115.06 0.00%
FXF $101.56 0.00%
SHY $84.82 0.00%
TLT $131.06 0.00%
AAPL $123.25 0.00%

Markets

DOW 17,712.66 +34.43 0.19%
S&P 500 2,061.02 +4.87 0.24%
NASDAQ 4,891.2190 +27.8570 0.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs