A Crystal Ball Peek into Precious Metals in 2017

The Market Gage conducted a Q & A with Walter Pehowich to gather his predictions for 2017 based on activity and events from 2016.

According to FedWatch, almost 75% of financial analysts do see a rate hike coming in December. How much of a hike? What happens in the first 24 hours and will that reaction set the tone as we head into 2017? Will there be a steady course of incremental increases each time the Fed meets? As we all witnessed and expected, a 25 basis point hike came during the Fed meeting in December. A $30 dollar decline in the gold price occurred right after the announcement. It wasn’t the rate hike that effected the price of gold so much as it was the language that was shared. The Fed Presidents are calling for at least three rate increases in 2017, which have given gold a sell signal. Since the announcement, the market has absorbed the news and the selloff has stopped–as there is no real evidence that three rate hikes are a sure thing. According to the CME Fed Watch tool, it’s not until June 2017 that the odds of another rate hike exceed 50 percent. One must remember that with a new administration, no one knows how the new policies will affect the markets.

With England now out of the EU, will the rest of the member countries exit one by one? If so, what does that do to the global metals market? If France’s far-right National Front leader Marine Le Pen is elected, she promises to take France out of the EU. She is a strong opponent of the EU and has anti-immigrant views. If France does exit the EU, this will leave Germany holding the bag for all the ills of the EU countries’ failing economies. In my opinion, the Fed must watch what is going on over the pond and no matter how enthusiastic this country is on the change of powers here. Problems over there will have a direct impact on future rate increases here in the States.

Do you foresee any particular geopolitical event that could really rock the precious metals market? Perhaps a bold move by Russia on its neighbors? Or more saber rattling by the Chinese in the South China Sea? I expect President elect Trumps’ first hundred days of policy to set the tone. I am concerned that right after the inaugural ceremonies, someone abroad will have the nerve test his resolve to see what he is made of. If this does occur, depending how serious this event is, it could stall his economic plan, thereby giving the price of gold and silver a boost.

Will the Central Banks ease or tighten their monetary policies in 2017? What effect would either outcome have on the precious metals market? Will China’s entry as an IMF currency cause them to begin stockpiling gold reserves to compete with the West? I expect the European Central Bank (ECB) to continue to maintain or further extend its monetary policies in 2017. In the event that other countries vote to exit the EU, I expect this to put tremendous pressure on the ECB. Just think about it–common sense dictates, and one would expect, that only the strong economic countries would want to leave, as the weaker ones will be looking for a bailout. I look to Europe in 2017 to be the catalyst for a rally in the price of gold. Any uncertainties abroad should keep the Feds from any further rate increases here.

Walter’s Take on Gold in 2017

Here is my case for why I believe the precious metal markets will have a slow start in the new year and pick up momentum in the second quarter. First I must admit I am bucking the opinions of many Wall Street Gold traders my technical friends who believe because of the stronger dollar and higher interest rates expected in 2017 the price of gold is a screaming sell at these levels. I disagree. There are many reasons I expect gold to finish 2017 higher than the first day of the year.

First as I did in my first comment of 2016 I said that in 2016 there will be no rate hikes, due to poor economic data and an uncertain presidential election. One might say I wasn’t far off. Well, I expect this year to be no different in the interest rate arena. As I write this comment, the CME FED Watch tool chart (that predicts future rate hikes) shows NO chance of a rate hike at any meeting more than 48 percent. And that’s in June 2017. Why I indicated the second quarter for a move higher is because I believe that during the first 100 days of the Trump presidency the equity market enthusiasm will continue. What May derail it will be activity in Europe. The EU is in political turmoil and things can only deteriorate. First let’s look at Germany, the King country of the European Union. Chancellor Angel Merkel’s political future is in question after her decision to admit into Germany hundreds of thousands of refugees. The political right wing is preparing an offensive to replace the Chancellor. Let’s not forget the Brexit vote and published reports that this year France and the Netherlands will possibly vote to exit the EU. If that happens guess who is left holding the bag for all the EU problems, GERMANY. Italy and Greece continue to need a bailout. How long will this continue until disaster strikes. Remember what I reported a few comments ago that a significate portion of Italy’s debt is held outside their country. Let us not forget that we are intertwined in an global economy and no matter how well the U.S. is doing, the rest of the world has the potential to hurt us economically.

So back to my reason why gold will be higher on December 31, 2017 than it is today. I believe the problems facing Europe will deteriorate in 2016 so much so that many over the pond will see gold as the only safe haven investment. What will happen to the Euro in relationship to the dollar? Not sure I know that answer. What I do believe is that because of the problems Europe is facing, the Fed will have no choice in considering our global economy issues and be handcuffed once again in 2017 from raising rates giving the price of gold a boost along with the strong anticipated physical demand across the pond.

The defense rests your honor.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.