Metals, Oil Soar as U.S. Bonds Tumble

Sharp reversals were evident all over various debt markets on Tuesday as a rally in Italian and German bond prices sparked a sell off in the safe haven of U.S. Treasury Bonds, after Standard & Poor’s did not downgrade the European Financial Stability Fund as was expected after S&P issued ‘Credit Watch Negative’ warnings about 17 European nations on Monday evening. The rally in Italian and German bonds began late Monday evening and carried all the way through Tuesday’s session.

Capital flooded back into European bonds at the expense of U.S. Treasuries which have been under selling pressure since last week’s announced coordinated opening of swap lines between 5 major central banks, including the Federal Reserve.  The latest rumor-mongering surrounding Merkel and Sarkozy agreeing to terms over how they will supposedly clean up the EU’s finances did not hurt things either.  Will this rally be nothing more than a good bout of short-covering or the beginning of the end of the Euro zone financial crisis?  Gold doesn’t seem to think so.

Gold futures bounced off of strong support near $1700/oz to rally almost $30 in two hours to close the COMEX session at $1733.60/oz.  Silver experienced a similar, if more violent, reversal rallying $1.20 to close up $0.58 at $32.75/oz recapturing the important 50 day moving average which has been acting as resistance since the metal broke below it during late September’s breathtaking plunge to nearly $26.00/oz.

Oil futures also see potential monetary inflation on the horizon as Brent Crude re-captured the $110/bbl level and West Texas Crude futures topped $101/bbl.

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Tom Luongo

About Tom Luongo

Tom Luongo is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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