Fed Chair Remarks Knife Gold

Gold and Silver Market Insights

Fed Chairman Jerome Powell’s remarks stuck a dagger into the price of Gold. Yesterday, Mr. Powell gave an upbeat view on the U.S. economy and said data has strengthened his confidence on inflation. Following his remarks, traders boosted their bets that the Feds will squeeze in a fourth rate hike this year. Bond yields also rose yesterday hurting the price of Gold and the closely watched CBOE Volatility Index (VIX) rose 2.79 points to 18.59, its largest one-day gain in nearly three weeks.

Today, the U.S. Dollar and Ten-Year Bond Yields are higher keeping the pressure on the price of Gold. Technical levels to watch out for in the April gold contract are $1,312 and $1,307. My chart trader friends tell me these two levels must hold or the market will once again test the $1,300 dollar very shortly.

I believe there is enough buying interest to keep the price of gold above those levels, as all the bad news that effected the price of gold in recent days has been absorbed by market participants already. So I expect a recovery in the price of Gold in the short term as I believe the market is oversold here.

Focus on Interest Rates

Even the threat of higher interest rates, are like a shot of poison to our economy.

Sales of new homes in the month of January fell 7.8 percent. Economists were expecting a 4 percent increase. And that’s right after the December number was down 9.3 percent.

And now, one would expect that before the rates go higher, and they are, many would want to close on their new homes quickly, but the numbers indicate that’s not happening.

Mortgage rates are now at a four year high.

Higher interest rates mean that consumers will not have as much disposable income and must cut back on spending. And what these numbers are telling you is that now there is a fear in the market place that these proposed Fed interest increases will knock some potential buyers out of the market. Sure, we all understand that if the economy heats up the Fed needs to be more aggressive. The decline in new home sales might be in part physiological. Low interest rates have been around for so long people were getting accustomed to it.

A rise in interest rates is expected at the next Fed meeting in March. As always, higher rates can affect the cost of housing, car loans, student loans and interest on your credit cards. (Like they’re not high enough already). We need to watch the GDP numbers and the rate of inflation to see if there is enough in those numbers to give the Fed the ammunition it will need to be more aggressive in raising rates in 2018.

The equity markets continue to shrug off any bad news that surfaces. The business news cheerleaders are always talking up the stock market, it’s great for their ratings. Tax cuts continue to fuel the equity markets, but poor new home sales numbers can indicate the start of an slowing economy. It will be interesting to see if this pattern continues or will higher wages, good job numbers (and better weather) turn these numbers around?

There is so much to watch out for and I expect the Fed will evaluate the numbers as they see it. It’s my fear as always they will be behind the curve not in front of it as witnessed since the last financial crisis.

Only time will tell.

Have a wonderful Wednesday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. 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. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.