The price of Gold is getting a boost from a weaker U.S. Dollar index and higher bond prices as investors bring new cash into safe haven investments.
CBOE VIX Index, also known as the “Fear Gage,” is on the way back up again as geopolitical risks are again front and center in investors’ minds.
Palladium’s Rise
The price of Palladium continues to head higher as more and more interest from investors enters into this thin and relatively small market.
Here is an interesting stat. Currently, the open interest in the March Futures on the exchange is approaching 25,000 contracts. In ounces, that’s 2.5 million ounces. Today palladium exchange warehouse stock holdings are reported at just over 44,000 ounces.
True, we are still six weeks away from the first notice day on the exchange in the March palladium contract. But as the open interest continues to climb, the folks at the exchange must be telling themselves we better stay ahead of clients putting too large of a position in March. Because in the end, there is a huge shortfall in the amount of Palladium that can be delivered to clients who will be long the March contract on first notice day.
In the past, the exchange did a superb job of limiting the amount of contracts one house could hold and never had a problem. But we’ve never seen the price of Palladium this high, and with so much new investor interest, it will be fascinating to see what the exchange does to avoid a potential problem.
I have full confidence that they will be successful, but the difference between the open interest and the warehouse holding is a significant amount. We will be watching closely to see how this pans out.
The Week at the Fed
The minutes from the December meeting were released on Wednesday. I find it interesting how the Fed comments can quickly change. Just in October the Fed Chairman Jerome Powell said the Fed Fund rate is far from neutral. Now the Fed Chairman is saying that the Fed will now be patient in its rate policy.
At their last meeting in December, all Fed participants voted for another rate hike. The minutes revealed that economic uncertainties are increasingly making it more difficult for the Fed to continue its aggressive rate policy.
The Fed officials all agreed that the economy is strong, but the Equity Market volatility, trade tensions, the flattening yield curve and the outlook for Global growth is a concern. So a pause is in order.
China Trade Talks
The Chinese Commerce Industry issued a statement on Wednesday saying both sides conducted in depth and detailed exchanges and laid the foundation for resolving mutual concerns. The U S officials also said that any agreement has to provide complete implementation subject to ongoing verification and effective enforcement. In response to the U.S. comment, China Commerce officials said it believes that “both parties” have an obligation to keep their promises. To say that both parties don’t trust each other would be an understatement.
It seems that the Chinese are serious about coming to an agreement as their economy is slowing much more than expected. The most recent data is showing that their Consumer Prices have dropped to a six month low and Producer Prices fell to their lowest point in two years.
Now that the Fed headlines are out of way, the outcome of these trade negotiations are front and center to any significant market moves. A verifiable agreement by both parties before the March first deadline should give the Equity Markets another leg up and would put pressure on the price of Gold. Continued rhetoric from both parties will only create more uncertainties and prop up the price of Gold. Unfortunately we will have to wait and see what develops.
Have a wonderful Friday.
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.