Weekly Metals Post Game Show, 7/20

It's becoming common knowledge that the US Government borrows 40% of what it spends, and that the percentage is increasing (hey, freedom isn't free, punk). It should also be common knowledge, though I'm afraid it's not, that the law of gravity is far more likely to discontinue than the increasing burden of government expenditures fall (at least until the whole shithouse goes up in flames), and that this is true whether the economy "recovers" to some extent or not. So anyone trying to predict the zombie apocalypse needs to be aware of how much it costs the government to borrow. That's why I always have my eye on the ratio of the 10-year yield to hard assets. In the big picture, the yield itself doesn't really reflect the cost to borrow -- unless you assume the dollar's value is stable, in which case you're probably a time traveler (Welcome to our blog and send my regards to the Air Lords of Han!).

Now, take a look at the 1/4 oz gold coin on the left, and the pink circle on the 1gram gold nugget on the right. These are actual size.

Just 10 years ago, the government would've given you a 1/4 oz 'roo a year for the privilege of borrowing $1000 for 10 years. Now, you get a little over a quarter of a gram. Borrowing costs are getting cheaper and cheaper for the government as it grows bigger and bigger. Understanding how that's happening and why is the fundamental macroeconomic question of our time.

Heck, I have more than a quarter of a gram of gold in my average stool, on account of the edible gold flakes I like to sprinkle on my eggs (washed down with a Goldschläger mimosa, of course).

I purchased this from Amazon
 http://www.amazon.com/Edible-Gold-Gourmet-Flakes-gram/dp/B000CDBJS2

Does the trend look like it will stop any time soon? Of course it's not only gold. The amount of oil the government pays you a year for borrowing $1000 is at an all-time low, having dropped from 1/2 a barrel to less than 1/60 of a barrel in little over a decade.

And of course we've been looking at the ratio with silver for well over a year, also close to its all-time low:

If you believe this trend will continue (and why shouldn't it) then either yields have to keep falling or hard assets will have to start going up fast (or both). How much lower can yields go? Will they become negative, meaning people will pay the government a fee for the privilege of lending them money for 10 years?

That's why I say the establishment economists and even outside-the-box thinkers like Nouriel Roubini, who say the gold bubble already popped with the so-called "blow off top" in August are nuts (an event precipitated by the drop in the US credit rating that raised fears it might get harder for the government to borrow... regarding which things have only got worse, with the debt ceiling being raised even higher with no end in sight). This is especially true at this point, when the so-called blow off top has merely been followed by what (by any rational measure) appears so far to be a mild correction:

Note, I will keep buying at the brown dotted line (above) and selling at the 40 day EMA (below), until the trade stops working.

Gold in euros hasn't even corrected, merely consolidating sideways for the better part of a year

Daily 

Weekly

Silver also has stubbornly refused to drop past its post-2008 trend line (purple)

On the weekly silver chart, the end of the wedge clearly beckons something big:

 As Trader Dan Norcini has noted, silver has tracked the $CCI closely. Note that the $CCI has reached a critical point of resistance, at the 200 day MA. This will be worth following. Whether that resistance can be broken or not will probably dictate the direction of silver's next move.