Fed’s Statement Boosts Gold

The Market Gage - Dillon Gage's Precious Metals Newsletter

All eyes on Fed Chair Janet Yellen’s testimony today as she reports to congress. However, her prepared statement was just released, so gold is already reacting.

In her statement the Chairwoman said that the Federal Reserve will need to keep gradually raising interest rates over the next few years, but that rate won’t need to rise to levels seen in previous cycles. Immediately after her comment was released to the media, gold rallied nine dollars. Silver also liked the news, up 20 cents at the time of this report.

Some folks think the price of silver is a buy here. On Tuesday, the Silver ETF added over 5.3 million ounces to the funds. Last night numbers reveled another 2.3 million ounces added. Physical demand is good. Now with this news out today, maybe we can build some support at these levels.

Back to the Fed

How does an investor or trader put together a trading strategy when the Fed has an open door policy of commenting at any time regarding future FED actions?

Let me share a story reported on CNBC.

Just yesterday a top U.S. central banker said he still expected one more rise in interest rates from the Federal Reserve this year and for it to start unwinding its massive balance sheet in the next few months. Answering audience questions at an economics event in Sydney, San Francisco Federal Reserve Bank President John Williams said he believed a recent softening in U.S. inflation was transitory and that inflation would pick up to around 2 percent over the coming year.

Once again, these comments are totally unnecessary. Williams’ comments affected the market in a negative way, as gold sold off three dollars, but then the Chairwoman’s comments today rallied the gold market nine dollars. So the Chair is dovish and Williams is a hawk? As I said before, the Fed should put a gag order on its members and let the Fed meeting minutes speak for themselves. After all, that’s the only time their opinions matter. The market has enough problems assimilating the news out there without them adding their two cents.

Is this the calm before the storm?

As a trader, no matter what product you execute your business in, the phrase you always love to hear is, “sustained market volatility”.

It seems market volatility has flat lined for the longest time and only this month has it experienced a slight pulse. What has given it the most modest pulse has been the concerns over stock market valuations, and tighter monetary policy in the months ahead. What has also created some stir has been the most recent sell off in technology stocks and all the hawkish comments made by Fed members.

The lack of market volatility also comes as a surprise to many with the geopolitical risks we face today and the slow growth of our economy. The market just seem to be content of sitting where it is today awaiting any good news from the folks on Capitol Hill before the next rally in equities can take place.

But is there any good news coming? Washington just got back to work on Monday. Do you think there is any hope of getting anything done before the August recess, even with the two week extension? And if they pass any bill, will be so watered down it will not make a difference to anyone?

This is how I see it developing. There will come a time when the smart investors will realize the powers that be in Washington can’t agree on anything. Right now there is no shot of even a compromise on a health care bill. And tax reform? Good luck. When everyone comes out the fog you will start to see a selloff in equities. Only the smart investors will see the calm before the storm and take their profits before it’s too late.

Yes, our market needs some assistance from the equity investor. The recent increase in global bond yields and the hawkish comments made by Fed members have been really hurting the price of gold. It only be when you see the equity investors cashing in their chips that the gold market will start a strong rally to the upside. Until then, we will continue to watch the bond market to see which way the price is headed in the short term.

Maybe we will get some help, it’s the start of earning season this week. Possibly the numbers will be less than the analysts expect.

And one more thing. On Monday, Treasury Secretary Mnuchin said we are still committed to getting tax reform done this year. Some fat chance when I’m told the Senate they can’t agree to what type of coffee to offer in their pantry, decaf or regular.

Have a wonderful Wednesday.

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 advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.