On January 3, 2014 the 10-Year Treasury Note futures contract closed at 3.01%, and closing above the 3% level for the first trading week of the year. A major milestone for short-term rates. The weekly chart below clearly shows a major bottom has taken place from the lows of 1.43% yield made back in July 23, of 2012. After a successful test of the 200 MA of 2.51% yield on October 21, 2013, the yield has risen to the highs made the last week of 2013 at the 3.04% level. With the yield trading above the 50 and 200 MA, it supports the uptrend to challenge the previous highs of 3.50 to the 4% levels made in 2011. This is a major shift to higher interest rates for the short end of the yield curve in a relatively short period of time and could have serious repercussions for the U.S. dollar, the global economy and precious metals.
"We continue to expect an acceleration of global economic growth in 2014." Commented Chief Economist, Richard B. Hoey, BNY Mellon and Dreyfus.
The question is how fast are the world economies going to grow with a zero base interest rate environment, world record debt levels and pressure on the cost of sovereign debt. We already have seen a substantial rise on the 10-Year T Note Yield above 3% and one can assume it's putting pressure on the national debt balances and deficits as I write this report.
Will China move away from the U.S. dollar as the world's reserve currency?
With the tides in U.S. interest rates changing, China is focusing closer at the risks and consequences this could bring to the global economies. What really matters is what China does next, says Simon Derrick, BNY Mellon's Chief Currency Strategist. "Whilst clearly they would hope that the United States will deal with the fiscal story in a sensible fashion, the only way they can ultimately break away from the cycle of having to lend money back to the United States is to liberalize their currency policy."
China has been moving towards the liberalization of its currency policy for the past few years. Simon believes they will issue a plan in that direction by the end of this year. "Or at least a dirty float for the currency, probably some point between 2015 and 2016."
The net effect would be dollar bearish as the almighty dollar will probably will not get much support from other currencies when China's liberalization occurs and consequently put a tremendous amount of pressure on U.S. bonds with the possibility of demanding much higher rates on its sovereign debt.
Is the U.S. Dollar Bearishness...Bullish for Silver and Gold?
Sprott's John Embry in a recently published report in Seeking Alpha commented the following: "The most important thing currently in the outlook for gold." He predicted that the "US government will move heaven and earth to try to keep the US dollar from losing its reserve currency status," but "I don't think they will be successful." He argues, and I agree, that China is already planning to usurp the American role as the world's reserve currency. Embry said, "When it becomes more evident…the impact on silver and gold is going to be extremely good."
On my last report published December 30, 2013, I made the following observation regarding the silver futures markets... I commented, "we were expecting some kind of bottom to take place between December 23/24 and that signal is still very valid as the low today successfully tested the previous low of 18.89 made on December 5, 2013. We were prepared as the window of opportunity to cover our shorts was there. I am not making any claims of being able to pick tops and bottoms by any stretch of the imagination but by using The VC Price Momentum Indicator, we have averaged a 100% gain in profits for 2013. This is documented in our LIVE track record performance for 2013, and that speaks volumes in itself."
Additionally I said... "Our published weekly VC Price Momentum Indicator posted on December 29, recommended to cover shorts at 18.97 on a weekly basis and reverse to a long position using the 18.97 as a weekly protective stop loss. A close below would usher the possibility of testing the 17 price levels."
The VC Price Momentum Daily Indicator prepared our subscribers to buy silver at 19.03. As the price came right into the VC weekly and daily signals indicator on Monday December 31, it confirmed with high probability that the bottom was is in place as expected at these levels.
During the first week of trading for 2014, the silver market opened at 20.08 and made a weekly low of 18.72, penetrating our stop level and reversing back to close at 20.17 on January 3. By using a weekly stop close only, it allowed us to stay in the game regardless of the market penetrating our stop levels during the day's trading session. This order will be executed only if the market was to close below this price level on a weekly basis. As the market moved back up to make the highs for the day at 20.44, it gave us plenty of opportunity to take our profit objective of 20.27, clearly and previously documented on The VC Price Momentum Indicator report published December 29, 2013. This was a gain of $6,750 per contract in the futures markets in three days.
I also said the following: "For the investors that shy away from the risks offered in the futures (paper) markets but are interested in participating in the silver market, we suggest you take a look at the AGQ, Exchange Traded Fund.
Echoing my comments I said, "Cover short on corrections at the 15.04 to 14.31 levels and go long on a weekly reversal stop. If long, use the 14.31 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 16.41 to 17.07 to levels during the week."
EMA subscribers got long AGQ at 15.04. The market opened at 16.12 and made a weekly high of 17.03 and a low of 14.97, closing the holiday week at 16.93. This was good enough to liquidate our long position established at 16.76 and recommended in my last report published in Seeking Alpha. This trade provided us with a whopping 11.4% gain in a matter of three days during a short holiday period.
The ability to know my trades ahead of time and allow the market to come to me is the most revealing aspect of using The VC Price Momentum Indicator, a proprietary trading tool created by the Equity Management Academy.
Let's examine the technical picture for the silver futures markets and AGQ and see what trading or investing opportunities we can identify for next week.
The March Silver futures contract closed at 20.17. The market closing above the 9 day MA (19.70) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bullish short-term trend to neutral.
With the market closing above the VC Weekly Price Momentum Indicator of 20.16, it confirms that the price momentum is bullish. A close below it would negate the bullish signal to neutral.
Cover short on corrections at the 19.99 and 19.82 levels and go long on a weekly reversal stop. If long, use the 19.82 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 20.34 and 20.50 levels during the week.
AGQ ProShares Ultra Silver Trust
The AGQ contract closed at 16.93 . The market closing above the 9 MA (16.92) is confirmation that the trend momentum is bullish. A close below the 9 MA would negate the weekly bullish short-term trend to neutral.
With the market closing above The VC Weekly Price Momentum Indicator of 16.31, it confirms that the price momentum is bullish. A close below it would negate the bullish signal to neutral.
Cover short on corrections at the 15.59 to 14.25 levels and go long on a weekly reversal stop. If long, use the 14.25 level as a Stop Close Only and Good Till Cancelled order. Look to take some profits on longs, as we reach the 17.65 to 18.37 levels during the week.
The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts
Trading Derivatives, Financial Instruments And Precious Metals Involves Significant Risk Of Loss And Is Not Suitable For Everyone. Past Performance Is Not Necessarily Indicative Of Future Results.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AGOL, AGQ, DBS, DGL, DGLD, DGP, DGZ, DSLV, DZZ, GLD, GLDI, GLL, IAU, PHYS, SGOL, SIVR, SLV, SLVO, TBAR, UBG, UGL, UGLD, USLV, USV, ZSL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.