- The dollar goes on the warpath…
- Bonds get routed…
Good day… And a Marvelous Monday to you! How was your weekend? Mine was pretty low-key, but we tried a new restaurant, and it was good! My beloved Cardinals had an OK weekend VS the Royals, winning 2 of 3 games… I will travel back to Missouri tomorrow, so no Pfennig… I’ll be back in the saddle at home on Wednesday, so look for me then! The Allman Brothers greet me this morning with their song: Blue Sky…
Well, the dollar had a banner day on Friday with the BBDXY gaining over 5 index points and ending the week at 1,202… I have to think that the markets were trying to think ahead at what might happen in Iran on Friday… You see, the POTUS was on his way back to the states, and the peace Accord had ended… So, the markets thought that on Friday night the U.S. would resume the war, as to not shift the markets one way or the other… Well, that didn’t happen, and now it we will wait and see if the markets put the dollar back in its underlying weak trend, or not… So, much for their attempt to read the tea leaves!
Gold and Silver got whacked! It was an ugly day for the metals, as all the metals, including Platinum, Palladium and Copper all saw major short selling… Gold lost $111 on the day to finish the week at $4,539; Silver lost $7.52 on the day to finish the week at $75.84… Copper lost 32-cents on the day to finish the week at $6.30… The short sellers made sure that I had to eat my words regarding Copper, didn’t they? Yes, they did…
The price of Oil saw its trader trade like the dollar traders did, in fear of another attack in Iran, and so they marked up the price of Oil to end the week at the $105 handle… The 10-year Treasury saw its yield climb to 4.61% before settling at 4.59% yield to end the week…
In the overnight markets last night… There wasn’t much movement in the asset classes… The dollar got sold a bit and the BBDXY starts today at 1,201… Gold is flat to up a buck in the early trading , and so is Silver, so far no SPT’s, but it’s early… The price of Oil bumped higher to trade with a $106 handle this morning, and the 10-year’s yield bumped higher too and starts today with a 4.60% yield…
I think the rout in bonds is putting pressure on the POTUS to get a deal done, soon… I have more on bonds in just bit…
Well, the next item to mark off the list of things seeing their prices and availability is motor Oil… Yes, you know the stuff you put in your engine. I immediately asked Kathy if her car back in Fenton was nearing an oil change… You see, Oil that’s used for base oil is seeing refiners capable of producing base oil prioritizing diesel output. ( I got that from Dave Gonigam’s 5 Bullets)
So, is your car nearing an Oil change? Well, I would suggest that you get it into the shop and get it done, right away, for the price of motor Oil is going to go sky high, and availability is going to be a problem in the near future… This public service announcement is brought to you by the Pfennig, and Battle Bank!
The currencies are getting hammered by the dollar right now, so batten down the hatches or crawl under a rock and forget about the dollar strength right now, as it’s not really strong… Just a brief rally, in my opinion, which I could be wrong, but I doubt it… The underlying weak trend is in waiting for the dollar to return…
I say, batten down the hatches, but… if you see something you like, this is the time to go out and buy it, because it’s cheap right now… So, if, for instance you see the Norwegian krone at 9.30 ish, and it was just at 9.10 a couple of days ago, then you see this as an opportunity to pick up some more krone and average price it is with your other krone… That’s what I could call “prudent buying”…
Ok, enough of that! Well, rising yields in bonds have really done a number on Gold & Silver…. Along with the SPT’s, rising yields have always been a bugaboo for Gold… And this time is no different, however, without the SPT’s piling on, the losses for Gold would be much more watered down from where they are now… I’m just saying…
Whenever I use the words “piling on” it sends chills down my back… I’ve told you this before, but here goes… Back when I was playing football in H.S. I went to tackle a punt returner near the other team’s sideline, and when I did, our momentum carried me into the bench, where it seemed the whole team piled on top of me, and started kicking me and I was smothering… That only lasted about 30 seconds, but it seemed like an eternity to me! And has stuck with me, all these years…
Rising yields are vogue right now, and I think they will continue to rise as long as inflation continues to rise, and it will rise in my humble opinion… PPI told us as much last week, but if you don’t believe that PPI is a harbinger for higher consumer inflation, then check out our bills for groceries, gas, and giggles… They will tell you that higher inflation is already baked into the goods…
Beyond these rising yields, I drift back to the mid 70’s (and yes, I was in the business then, smart Alec!) inflation was soaring like it is now, and then stagflation set it, which is the scenario of high inflation combined with high unemployment and stagnant demand in a country’s economy, and Gold rallied in the face of higher interest rates fighting inflation… So, it’s not out of the question if Gold can rally during higher interest rates… The problem here and now is that I’m probably one of the few that are still in the business that was around back then… They have no reference to compare today with yesteryear… But they’ll figure it out, sooner or later, hopefully sooner, but they will figure it out, once inflation is soaring to new levels…
The war in Iran isn’t doing Gold any favors right now either… I read this past weekend that Wall Street is seeing this as a rising yield and dollar story to fight Gold’s rise… What do they think about the U.S.’s situation regarding debt servicing? I mean I really do think we are heading to a recession and with our $39 Trillion national debt, it leaves government worse prepared for recession than ever, in my humble opinion…
And the U.S. isn’t exactly cutting deficit spending, are they? I read this past weekend that the U.S. has already on the books, a deficit for 2026 of $954 Billion… They still have 5 months to go until their fiscal year ends, and don’t forget that the war deficits haven’t hit the books yet… if the U.S. was a company, or individual they would have to declare bankruptcy or default by now…
And the bond boys took to marking up the yield in the 30-year last week… Treasury long bond (30yr) yields jumped 18 bps this week to 5.12%, surpassing the October 2023 gilt crisis spike to the highest yield all the way back to (“still dancing”) July 2007.
2007? Man, I had hair back then… I was smaller in size… I was just establishing myself as the “currency guru” (I was the only writer out there writing about currencies and Gold ) and the Great Recession was beginning… I did a quick look at the songs in 2007, and it reminded me that I didn’t listen to new music then… I didn’t recognize any of the songs! The Red Sox won in baseball and the Colts were the Super Bown Champions… Man, that was a long time ago!
This dollar rally takes its toll on the usual subjects… The euro is first to succumb to the dollar pressure, and then the rest of the currencies follow the euro’s lead… Even with the price of Oil so high, the Petrol Currencies are seeing their respective currencies get sold… But don’t lose faith in your diversification… This dollar rally will be brief, in my humble opinion, and then we’ll see unicorns fly across the sky, the beach will be full of shells, and the sun will be warm… In other words, all will be right in the world again…
The U.S. Data Cupboard had the April Industrial Production and Capacity Utilization to print on Friday and IP gained 0.7% for the month and CapU moved up to 76.1% from 75.5%… I really think these were cooked books reports… I guess we’ll see later this summer when The Federal Reserve Board plans to issue its annual revision to the indexes of industrial production (IP) and the related measures of capacity utilization in the autumn of 2026. So, they get to romp and rollick until August… I’m just saying…
The other thing to think about with data reports is that they are all inflated… Take Retail Sales for instance: Everything that goes into calculating Retail Sales has seen HUGE upward price movements, so wonder Retail Sales looked strong… Keep this in mind when you review data prints…
To recap… It was an UGLY day for the metals on Friday, as Gold lost $111 and Silver lost $7.52 Usually when you see the metals go through a wash, rinse and spin cycle, the selling comes to an end and then the buying can begin again… So, the question is: has the SPT’s gone through their wash cycle yet? The dollar is getting bought because of the higher yields in bonds, but I think dollar traders will rue the day they bought dollars now… at a later date that is…
For What It’s Worth… Well, I’m a true believer that foreign buyers are demanding higher yields at the Treasury auctions, and eventually they will get them… This is an article about the latest Treasury Auction and how things are going and can be found here: US Government Sold $691 Billion of Treasury Securities this Week, 10-Year Yield Spikes to 4.6%, 30-Year Yield to 5.12% as 2nd Wave of Inflation Takes Off | Wolf Street
Or, here’s your snippet: “Longer-term Treasury yields spiked late this week as the second wave of inflation took on more substance with back-to-back inflation reports: CPI inflation soared by 3.8% year-over-year, driven by core services, gasoline, electricity, and food; and the measure that tracks inflation in prices companies pay each other, the Producer Price Index soared by 6.0% year-over-year as the services PPI blew out. Inflation in services is the biggie. Services account for over 60% of the economy, and inflation took off in services.
The 30-year Treasury bond sold at the auction on Wednesday at a yield of 5.046%. In the secondary market, the 30-year bond has traded over 5% from time to time in recent years, but this was the first time since 2007 that the 30-year bond actually sold at auction with a yield above 5%. And in the secondary market, the yield rose following the auction and ended on Friday at 5.12%, the highest since June 2007, having edged past the October 2023 high.
The long end of the Treasury market completely blew off the Fed’s rate cuts, as indicated by the widening gap, now 149 basis points, between the 30-year yield (5.12%) and the Effective Federal Funds Rate (EFFR, blue line) of 3.63%, which the Fed targets with its policy rates.
Higher bond yields in the market mean lower bond prices for existing holders.
The bond market is now fretting about a lax Fed that would “look through” the surge of this second wave of inflation for too long and, instead of getting serious about it, would proffer more excuses why no rate hikes were needed at this point. And the bond market is cutting the market price of those securities, which causes yields to rise.
The 10-year Treasury note sold at the auction on Tuesday at a yield of 4.468%. The yield then continued to rise in the secondary market, including by 11 basis points on Friday, to 4.60%, the highest since January 2025.
Longer-term yields reflect the bond market’s views of the future – especially the path of inflation as the second wave takes shape, amid the tsunami of supply of Treasuries to fund the ballooning deficits.”
Chuck Again… yes, the ballooning deficits of the U.S. will require greater Treasury issuances, and everyone will hold their collective breath until the whole auction is sold… I’m just saying
Market Prices 5/18/2026: American Style: A$ .7153, kiwi .5858, C$ .7267, euro 1.1634, sterling 1.3356, Swiss $1.2730, European Style: rand 16.6746, krone 9.2955, SEK 9.4348, forint 310.69, zloty 3.6615, koruna 20.9146, RUB 72.51, yen 158.92, sing 1.2799, HKD 7.8308, INR 96.35, China 6.8009, peso 17.32, BRL 5.0556, BBDXY 1,201, Dollar Index 99.18, Oil $106.45, 10-year 4.60%, Silver $75.99, Platinum $1,972.00, Palladium $1.472.00, Copper $6.25, and Gold… $4,540
That’s it for today and until Wednesday… I don’t care for short trips to my winter home, I just get settled into the flow here, and it’s time to go home… UGH! But I do like the different restaurants we have down here, like we tried a new one the other night and it was delightful! I think the Pfennig was quite long today, so you’ll have a lot to take in while I’m gone tomorrow! The Friends of Distinction take us to the finish line today with their great 60’s song: Grazing In The Grass… I hope you have a Marvelous Monday today and Please Be Good To Yourself…
Chuck Butler