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Oh ok, so how do you explain the fall of gold recently and the falling of yields, as far as fundamental factors?
What do you arbitrage? I am no expert on this, but I gather it is not stat arb, but 'proper' arb, i.e. no risk? If so, I would wonder how, considering this market is pretty much zipped up by high speed algo bots as far as I am aware.......
No attack, just valid questions.
MRC
Let's start with the easy one first.
Falling Yields. Depending on which part of the yield curve you are looking at, you will have very different analysis.
At the SHORT end, which is controlled by Central Banks, they obviously can set any rate that they deem fit. Generally, from this rate, a spread is established at different maturities expressing a number of factors: risk, inflation, time value, etc.
Now you don't mention which maturity you consider to be falling. But if I assume the 10yr Note, I would actually say it is rising [from it's lows] This represents among many things, a perception of potential inflation as a risk.
As to the fall of Gold. Waynes chart of seasonal factors is as good explanation as I have seen. In a nutshell, gold fluctuates like all financial markets. I think, that gold is still in a bull market and has yet to see it's blow off top, which will coincide with possibly the bottom in the Bond market. But of course I could be totally wrong.
Now that is a real reversal on my part. I've tried in the past to value gold based on historical inflation rates, which actually works reasonably well. The inflation that is being potentially created currently however is several orders higher than anything we've seen in the past, including the 1930's.
GS and their front running is an example of high-tech arbitrage. They arb the order flow. Obviously I don't [and can't] do that, but there are plenty of opportunities available.
jog on
duc