The dollar weakened on Friday as July Retail Sales fell, with the BBDXY down 3 points overnight to 99.42 and the Dollar Index at 99.42, while the week-end close was cited at 1,201 versus BBDXY 1,198 in the market table. Gold rose $25 to $4,377 and later printed at $4,388, while silver added 33 cents to $64.58 and then traded at $65.41. In positioning data relayed from the COT Report, “Big 8” silver shorts were described as 106 days of exposure, equating to 245.795m troy ounces or 49,159 COMEX contracts, up from 238.555m ounces or 47,711 contracts the prior week. Oil held an $82 handle, last shown at $82.62 after an $11 jump, and the 10-year yield moved from 4.69% on Friday to 4.71% to start the week.
In US funding markets, a 30-year Treasury auction saw $25bn sold at 5.216%, the highest yield since 2001, while the prior day’s 10-year auction produced the steepest cost at that tenor since 2007. The Treasury also adjusted its debt-sales guidance, leaving scope for reducing long-bond supply. Elsewhere, a stock-market warning was flagged via the Hindenburg Omen, and the Empire Regional Manufacturing Index was said to have risen by 20. The debt stock was described as approaching $40tn, with reference to a prior $39tn milestone.
Bond Market Volatility, Rising Yields and Debt Pressures
We are seeing the US dollar index slide to 99.42 while treasury yields remain stubbornly high, with the 10-year hovering at 4.71%. This disconnect is driven by massive government debt pressure, which is rapidly approaching the $40 trillion mark. Derivative traders should look to position themselves for continued volatility in the bond market as these yields test multi-decade highs.
The cost of financing US national debt has already surged, with net interest payments recently surpassing an annualized $1.1 trillion. With 30-year bond auctions pricing at a steep 5.216%, the government is paying the highest borrowing costs we have seen in a quarter-century. We expect this fiscal strain to keep upward pressure on long-term yields, making bearish plays on long-term Treasury futures highly attractive.
Precious Metals Positioning and Equity Market Risks
While gold has surged to $4,388 and silver is strong at $65.41, we must tread carefully due to massive short positions held by large commercial traders. The “Big 8” traders are currently shorting about 245.8 million ounces of silver, which represents nearly 3.5 months of global production. We recommend using protective put options on precious metals to hedge against sudden, engineered paper-driven selloffs in the coming weeks.
We are also keeping a close eye on equity markets as the Hindenburg Omen flashes warning signs of a potential stock market correction. If a broader stock market crash occurs, history shows us that traders will aggressively liquidate gold and silver to meet margin calls. Position sizing in metal derivatives must remain conservative to survive these sudden spikes in liquidity demand.
