Written for First Post
September 3, 2011: The 30-year US treasury bonds broke out to a new all time high, signaling the return of risk aversion. Other safe havens such as gold, silver and dollar too rallied last week.

Gold, silver, the Dollar and 10-year US treasury still have to clear resistance levels to confirm the end of the bear market rally. A rise in price in a falling market is called a bear rally. For the past several months the equity market was falling only to rally some last week. 

The bond tale

On Friday, the 30-year treasury bonds rallied to a new high after US released a poor employment report. A rise in bond prices result in a fall in interest rates. And falling interest rate at the long end signals a recession as it indicates that business are unwilling to borrow at the long end and take long term bets. Most long term loans are taken for capital investments and a lack of demand for these loans does not augur well for economy. It shows lack of business confidence.

The prices of the 30-year US treasury breaking out to a new high means that there is no overhead resistance. The result can be a continued rise in prices. A look at the 30-year chart clearly shows prices moving to a new high (Click here 30-year US treasury chart ) . However, other safe haven assets have not followed the 30-year treasury with the same velocity. The 10-year US treasury has still not made a new all time high. (Click here 10-year treasury )

Precious metals

Gold and silver too have not gone above their all time highs. Silver is still a long way from it's all time high, but gold is close. We'd look at the prices of gold to gauge risk aversion in the global markets. The all time high on gold was around $1915 and a close above that would signal increased aversion to risky assets such as equities. (Click here for Gold chart ) The yellow metal closed at 1886 on Friday

Silver still has a few resistance areas to clear before it can take out its all time high. The white metal closed at $43.28 on Friday and immediate resistance level to clear is 44.50. Once that level is cleared silver can head to it's all time high near $50. (click here Silver chart )

Remember that all is not lost for the risk trade. It's possible that either gold or the 10-year US treasury can hit their previous all time highs and sell off. This can lead to a rally in the equity markets.

Dollar surprise

The rally in the dollar surprised several market players. All the indications were that the greenback would fall below the 73.50 support level as the area had been hit several times. However, the rally in the dollar shows the intensity of risk aversion. Note that for the risk aversion to play out the dollar has to rally above 75.45 and then some. The  dollar index closed at 74.76 on Friday. (Click here for the Dollar chart )

It is important to note that the dollar and silver are not the best indicators of risk aversion right now. We would look at US treasuries and gold.

Copper

Last week we had mentioned that the equity markets could rally due a rally in copper. That's what happened. The equity markets follow copper with a lag. Notice that copper has not sold off a lot as the equity markets in the US fell. This raises the spectre that the sell off in equity may not continue. (click here for Copper chart )

We would right now focus on the price action of US treasuries and gold to see where the equity markets will go.