Gold & Dollar Index Stuck

Gold & Dollar Index Stuck

This morning the price of Gold is trading either side of unchanged, which is not surprising, as we see the U.S. Dollar Index also not moving.

Equity markets are likely to face increasing volatility as no progress is seen in the U.S.-China trade negotiations. Investors might start to look for alternative investments to equities, as factors such as high country debt levels and emerging inflation can cause headwinds to higher equity prices. Eventually, increasing tariffs will hit the consumer in their pocket books, which also is not good news for the equity investor.

Mining the Good Gold News

You might NOT believe that there is good news to report in the Gold market, but there is. Let’s make a case for why the price of Gold will NOT break thru and test the most recent low at $1,160 dollars.

First of all, looking at the Commitment of Traders (COT) Report, overall the market is holding on to a net short position. If you have followed the COT report over the years, you would see that traders are historically net long.

In other words, the market is saturated with short positions. The question remains, who or what will cause market participants to sell further into this market at this time.

Everyone believes that the Fed’s continued aggressive stance for raising rates into 2019 and the ongoing strength of the U.S. Dollar should keep the price of Gold under wraps. But with all that information baked into the market, is that enough to move an overall quiet market lower?

Having worked for 38 years on a Wall Street Gold trading desk, I got to know who the big players were and the strategies they used to make money in the Gold Market. From hedge funds to large spec traders these groups could have a significant impact on the price movement in Gold.

Over the years, with the elimination of the open outcry on the Comex Floor and tighter regulations reducing prop trading, the volatility in the Gold market has significantly been reduced.

Today, both the Wall Street Gold Trader and the spec traders are still around but not very active at all because of the lack of price movement in a quiet market as we are experiencing today. For the most part, the Wall Street Gold traders have been sitting back and letting their algorithm programs do the work for them as they look for other opportunities in other markets to make a living.

Overall, if this was a different time, higher oil prices, a stronger dollar and higher interest rates would have a more profound impact on the price of Gold.

One would have expected that with the equity markets having a tremendous run, a stronger U.S. Dollar and higher interest rates the price of Gold should be trading at a much lower level than it is today.

Up to this point it just hasn’t materialized. I don’t claim to have a crystal ball or magic wand, but with all that’s happened I just can’t see the rug being pulled out from the price of Gold at this juncture.

Yes, at 65 I’m still working for a living and enjoying each day. You might ask, what does he know? Well, I’m no different from the next guy in this business, but all indications point to higher levels not lower levels at this time. Because if the price of Gold was to take a major hit, I expect it would have already happened.

That’s why I tell my friends who are financial advisors, a good course of action to share with their clients at this time is a dollar cost averaging approach to entering the physical Gold market. A diversification strategy might work for a truly balance portfolio just ahead of the midterm elections. It just might pay off.

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.