"I think the fundamentals for gold are pretty good," Rick Rule of U.S. Holdings says.» Read More
The market is contending with several scary scenarios that have put a serious crimp in the stock rally. The idea that the U.S. could carry out military strikes on Syria, combined with renewed pessimism about the debt ceiling debate, led the S&P 500 to drop over 1.5 percent Tuesday.
But Krishna Memani, OppenheimerFunds chief investment officer of fixed income, said such concerns are little more than red herrings. The real problem, he cautions, is slow economic growth.
Concerns about the debt ceiling came to the fore on Tuesday, when Treasury Secretary Jack Lew wrote a letter to congressional leaders saying that the U.S. will hit it in mid-October. When that happens, the government will not be able to issue more debt without authorization from Congress. And given how divisive that body has become, even another short-term authorization to keep the government functioning is not counted as a sure thing.
Lew's comments on "Squawk Box" didn't indicate that a compromise is imminent.
"We're not going to be negotiating over the debt limit," Lew said. "Congress has already authorized funding, committed us to make expenditures. … The only question is, will we pay the bills that the United States has incurred?"
(Read more: Lew: Obama not negotiating over debt limit)
Meanwhile, many Republicans have said that they would not vote for a bill avoiding a shutdown without the (unlikely) concession of defunding Obamacare. As Sen. Ted Cruz (R-Tex.) recently put it, "If you have an impasse, one side or the other has to blink. How do we win this fight? Don't blink."
Memani downplays the White House and Republican rhetoric.
"If they don't compromise, then that clearly is bad for the economy," the fund manager said. "But it don't think that's really a base-case scenario, because we have seen this movie several times before."
The picture has changed for gold. First of all, the U.S. appears to be considering military action in Syria. Second, traders are becoming more skeptical of the idea that tapering is imminent. And between Syria and the evolving thinking about the Fed, December gold futures have gotten pushed up to a 2½-month high of $1,423.
However, gold is now approaching significant technical resistance around $1,428. I believe the push higher in gold will begin to lose steam, and present the opportunity for a contrarian play. For one thing, it's hard for me to believe that the current administration will formulate an aggressive military plan. After all, the public certainly does not appear to have the appetite for it.
(Read more: Gold jumps on possible strike against Syria)
If you think the Federal Reserve is happy with the recent rise in rates, then you're wrong. The Fed has to be quite uncomfortable with the velocity of this recent move, which has seen the 10-year yield climb up from 1.6 percent to 2.9 percent in just 3½ months. Meanwhile, one of the biggest misperceptions in the market today is that equities have properly digested this massive move.
So how does the Fed allow the market to acclimate to the rate rise, and keep the 10 year-yield suppressed specifically under 3 percent, even as the marginal efficacy of quantitative easing is being questioned? Simple: They minimally reduce (a.k.a. "taper") QE in September, to the tune of $10 billion to $15 billion.
(Read more: The 3 reasons everyone is dead wrong about bonds)
Why will that work?
I am not going to sugarcoat this: The durable goods number that was released Monday morning was terrible.
We expected to see orders for U.S. durable goods drop 4 percent, but they actually declined by 7.3 percent. A number this bad begs us to ask: Can the U.S. ever pull back on QE?
The reaction in the S&P e-mini indicated a belief that it won't happen anytime soon. Once that durable goods number was released, we saw the Dow erase all its early losses, and trade higher.
(Read more: The hidden reason why the Fed will taper: Pro)
Why would that happen after such a bad number? Because market participants believe that this indicates that there will be no tapering in September, and QE will continue. And I am beginning to believe that they are right.
After all, housing looks bad, and employment is not at the target that was set. And even though there have been some positives in the economy, we are still projected to grow by only 2 percent.
Is the Fed taking a September taper off the table? That's certainly what gold bulls are hoping for.
After holding the major $1,352 level, gold finished the week with tremendous strength, trading to new swing highs. Although the metal was just short of $1,400, it closed nearly $20 higher on Friday, reaching $1,399.90. Gold then continued the run on Sunday night, trading to $1,407.
This support for gold comes as investors view the taper as less of a sure thing. After new home sales data on Friday turned out to be a big disappointment, traders and investors found gold very attractive, betting that the $85 billion a month in bond purchases by the Fed will likely continue through the end of 2013. Weekly data have been the major mover for the metal and the dollar, as the clock is ticking for the Fed to make a move on the ongoing stimulus.
(Read more: The hidden reason why the Fed will taper: Pro)
During Nasdaq's three-hour shutdown, traders who pulled up a chart of the Nasdaq composite or the Nasdaq-100 index were treated to a spooky flat line. But since futures continued to trade, investors who wanted to hedge their exposure were able to turn the Nasdaq-100 e-mini futures.
Shortly after trading halted Thursday afternoon, the Nasdaq-100 made a quick move lower, from which it recovered over the course of 20 minutes. Jeff Kilburg of KKM Financial says that was a direct response to the technical malfunction.
(Read more: Cramer: We need a disaster plan!)
"When you saw the official statement come out that the Nasdaq freeze was on, traders sold the Nasdaq e-mini down 10 handles. When there's any type of uncertainty, panic sellers do come into the market," said Kilburg, who is a CNBC "Futures Now" contributor. "But it wasn't a market crash, it was a market glitch—and there's a big difference. Once we realized that, the market came right back."
For traders, the shutdown served as one more reminder of the importance of the futures market.
(Read more: Trading automation and Nasdaq's tech glitch)
Gold is not following through to the upside, and that leaves it vulnerable.
Although the Federal Reserve's minutes provided no clear answers, many analysts argue that when you listen to recent comments, and couple those with the minutes, a September taper continues to be a likely scenario. According to the minutes, Federal Open Market Committee members broadly suggested that as long as a careful decision is made based upon improving economic conditions, a reduction in easing will definitely be on the table for the September meeting.
Continuing to track market leadership, we have seen various sectors take the baton and run during the last few, Fed-influenced years. As someone who cut his teeth in the rugged bond pits of Chicago, I will always have a Treasury ticker in view. But lately, we have been laser-focused on the Nasdaq—and Nasdaq-100 futures specifically.
Since the June 24 equity lows, the Nasdaq-100 has indeed been a market leader. It logged a 8.8 percent gain from those June lows to the early August highs—compare that to the Dow's 7.7 percent gain and the S&P's 5.9 percent rise. Since those high prints, the thin, whippy August trading environment has eroded 4.5 percent off the Dow and 3.8 percent off the S&P, but the Nasdaq e-mini has dropped a mere 2.5 percent.
(Read more: S&P presents 'amazing opportunity' for traders: Pro)
Have you sold bonds lately? You're not alone.
TrimTabs reports that bond mutual funds and ETFs have seen $114 billion in redemptions since the month of June—$30.3 billion of which has come between Aug. 1 and Aug. 19 alone. But that should probably come as little surprise, considering the Bank of America Merrill Lynch's August Global Fund Manager Survey showed that a mere 3 percent of investors think long-term bond yields will be lower in 12 months.
The obvious culprit is the Fed's tapering talk. Ever since Fed Chairman Ben Bernanke said on June 19 that "the Committee currently anticipates that it would be appropriate to moderate the monthly pace of [bond] purchases later year," the 10-year yield has risen from about 2.15 percent to 2.9 percent remarkably quickly. The concern is that the Fed will decide to taper its bond-buying program at its next meeting in mid-September, and that the reduction of buying support will cause bond prices to drop and yields to rise.
But Lawrence McDonald of Newedge says investors are getting the bond trade all wrong. In fact, he boldly claims that the 10-year yield will finish the year at 2.35 percent, and "maybe even 2.20."
So what are investors missing? McDonald on Tuesday spelled out the bond market's three biggest misconceptions on CNBC.com's "Futures Now."
Bond yields will continue to rise, but don't say that the Fed has lost control. Actually, this is Chairman Bernanke's gift to his successor as he heads toward the exit.
After printing 2.88 percent on Monday, 10-year yields have drifted back down to 2.82 percent. Very soon, taper talk will morph into actual tapering, and Treasury markets will have to get used to less Federal Reserve sponsorship.
(Read more: For bond investors, it feels a lot like 1994)
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