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COMMODITY INSIGHT
152 Ennis Lake Road, Ennis, Montana
(November 13, 1997) FINANCIAL INSTRUMENTS: On a weekly closing basis, Treasury bond futures are now at their highest levels since February 16, 1995. The bond market therefore, is doing quite well. Few markets today can make such a boast.
Bond prices continue to be supported by a decline gold market and a flight to quality every time the U.S. or the world's equity markets run into trouble. When gold falls, bonds rise. When equities fall, bonds rise.
There tends to be an inverse relationship between bond prices and gold. That relationship put on quite a show this week when bonds ended the week at their best level since February, 1996 while gold prices fell to a 12-year low. It's no wonder bond prices are doing well!
I mentioned in the last issue of this newsletter to keep an eye on the bond market if prices rose much above the 118-20 level. If they did, I argued “equities could fly.” This week they did, as the S&P rallied from 903 on Thursday, to 935 by Friday. The rally on Thursday and again on Friday was a direct result of rising bond prices.
If bond prices continue to rise as they have been doing since August, buying breaks in the Dow and stock indexes is a far better approach to take than to be selling rallies. Bond prices are the key to the direction of the equity markets. And right now, bond prices are strongly suggesting that equity prices are headed upward.
Jerry F. Welch
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