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Yields Spike on Higher Inflation Concerns

Tue, May 15, 2018 - 12:48pm

US empire state manufacturing survey prices
Source: Bloomberg, Financial Sense® Wealth Management

The trend towards higher inflation continues to strengthen. Today’s release of the Empire Manufacturing Survey for May showed a pickup in the prices paid index to a seven-year high, matching levels not seen since the high commodity prices of 2011.

The 10-year Treasury has spiked above 3% at 3.05% on the news. Technically, the 10-year yield is in an uptrend with a head and shoulders pattern pointing towards a target of 3.8%. 3% is psychological resistance and that’s being tested today.

CBOE 10-year US treasury yield index
Source: Stockcharts.com, Financial Sense® Wealth Management

Higher rates here encourage money from overseas as other central banks keep rates unchanged and continue to buy bonds in Europe and Japan. Also, some real issues with declining foreign currencies in South America steer money as well to the dollar.

The dollar today is up to 93.21, which is still within near-term resistance levels, and is overbought. If the index breaks above 93 by 1-3% it will be a significant change in the technical picture.

US dollar index
Source: Stockcharts.com, Financial Sense® Wealth Management

A strengthening dollar is typically a headwind for gold, even though the reason the dollar is up is primarily due to rates and inflation. Gold is below $1300 and trading at intermediate-trend support. If it fails to rally from this level it could test longer-term support at $1250.

GC(D) comex
Source: TradeStation, Financial Sense® Wealth Management

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About the Author

Chief Executive Officer, Technical Analyst
ryan [dot] puplava [at] financialsense [dot] com ()
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