We start the year with higher gold and silver prices caused by geopolitical tensions in the Middle East. Also contributing to the higher price of Gold this morning is the decline in the world equity markets.
China setting the tone for the world equity markets this morning. A 7-percent drop in the Shanghai Stock market triggered circuit breakers that halted trading on the first trading day of 2016. The main contributing factor to the Shanghai decline this morning was the news that China’s manufacturing surveys show that factory activity slowed for the 10th straight month.
On the opening bell of the Dow this morning, we see the industrial average down over 300 points on concerns of China’s data, escalating Middle East tensions and higher oil prices.
In the middle east, Gold is finding safe haven status after Saudi Arabia broke off ties with Iran when protestors stormed its embassy in Tehran upon hearing the news of the execution of a popular Shiite Muslim cleric. The price of crude oil is higher today by 2 pct. because of the actions of the Saudis, the world’s largest exporter of oil.
Wall Street traders back from their long Christmas holiday indicate that they are forced to take on a defensive position covering their small short positions carried over from last year. After speaking to some traders this morning, it appears they expect 2016 to be the same as 2015. Many looking at a decline in the price of Gold and Silver around 15 percent, weaker than the 13 percent decline
in both metals in 2015. I’ll take the other side of that trade. I expect metals will be higher this year because of tensions building in the Middle East. I believe countries will be forced to pledge their allegiance to one side or the other, making it even more important that we have the proper commander in chief in the White house next year. If the world markets decline, I expect any increase in the Fed fund rate will be put on the back burner for a while giving me more confidence that a higher price of gold is in order for 2016.
With the news out this morning, some retail brokers expect clients to take some profits off the table and look for alternative investments in the new year. Some financial advisors indicate that clients will be looking at bonds or precious metals as alternate investments in 2016 if equities decline due to world economic pressures and escalating Middle East unrest.
Nonetheless, in the event that our markets go higher and the demand picks up in 2016, don’t look for the refiners or the mints to make more product available. Most are reporting status quo for 2016. I have not heard of any mint or refinery hiring more folks or buying more equipment in 2016.
Have a wonderful week and a healthy and prosperous 2016.
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.