RISING RATES BOOST THE DOLLAR WHICH PUSHES COMMODITIES LOWER -- MR BERNANKE IS NOW MORE CONCERNED ABOUT INFLATION

BOND YIELDS RISE ON INFLATION CONCERNS ... Comments from the Fed head that inflation was now his bigger concern sent bond yields sharply higher today on expectations that the Fed may start raising rates to keep inflation under control. Chart 1 shows the 10-Year T-Note Yield closing at the highest level since the end of December. That also puts the TNX back above its 200-day moving average. Rising U.S. rates since mid-March have put a floor under the U.S. Dollar. Chart 2 shows the US Dollar Index jumping 1% today to record its biggest one-day gain in months. The sharp rise in the dollar caused profit-taking in commodity markets and stocks tied to commodities.

Chart 1

Chart 2

GOLD ASSETS LOSE MORE GROUND ... Gold and gold stocks were hit especially hard. Chart 3 shows the streetTracks Gold Trust (GLD) falling the equivalent of $27 today on rising volume. That puts GLD in danger of dropping back for a test of its 200-day moving average. Chart 4 shows the Market Vectors Gold Miners ETF (GDX) losing more than 5% on rising volume. The GDX failed its attempt to climb back over its 200-day line. My Saturday Market Message suggested that gold assets might offer a safe haven (along with bonds) in the current environment. That won't be the case as long as US rates and the dollar keep rising.

Chart 3

Chart 4