Gold Drops Off Of Tuesday’s Rally

The Market Gage - Dillon Gage's Precious Metals Newsletter

All eyes on the Fed this afternoon as we await news on any rate hike. The Fed leaves rates unchanged. Odds of a rate on the CME Watch Tool this morning unchanged at 4pct. More important will be the language shared at the meeting.

Gold this morning is in negative territory as the dollar returns to the plus side along with treasury yields.

Here’s a headline from over the pond I want to share with you this morning showing inflation in the EU surging to the highest level in almost four years. According to the data released today, consumer prices in January grew the fastest since January 2013. Some are now calling for the European Central Bank (ECB) to cut back its bond buying program.

This past Sunday, members of France’s governing Socialist party elected Benoit Hamon as their choice to run in the April presidential election. The Socialist party had a choice between Benoit Hamon and former Prime Minster Manuel Valls. Early indications didn’t give either one a chance of winning the presidential election. There are other candidates that have a better chance including frontrunner, conservative Francios Fillon, far right wing candidate Marine LE Pen, centrist Emanual Macron and independent left wing candidate Jean-luc Melenchon.

It’s not my intention to bore you with this information, but to inform you that this election could have very serious consequences for the future of the European Union…which would then impact gold.

Why? Because if Marine Le Pen is elected, and yes she is gaining momentum, Ms. Pen has indicated that within the first six months in office she will put together a referendum for France to exit the EU. If that happens, there is a good chance it would be the end of the European Union as we know it.

Right now, many people in Europe believe that the anti-establishment movement that got Trump elected here in the states
and unexpectedly won the Brexit vote in England, is strong because people are tired of the same old politics and want a change.

So the first round of France’s presidential election is scheduled for April 23rd and in the event that no one candidate wins a majority, a run off will be held between the two leading vote getters in May.

Ok, let’s assume the Trump spirit is alive and well in the minds of the French voters, and that Ms. Marine Le Pen wins the election. Let’s also assume she is successful in getting the people of France to exit the EU. I’m sure you are asking yourself how this would affect the price of gold. Believe me, there will be many, many issues effecting the world economy if this happens and it should be a “GREAT” concern for all investors. But since this is a precious metals commentary we will just address the price of gold.

I don’t think anyone can argue that Italy, Greece, Spain and Portugal are bankrupt and will always be looking for a hand out.
First it was Greece needing a bailout, and if my memory is correct it was more than one Greek bank, then it was Italys Monte dei Paschi bank. Who knows who or what will be next. One has to believe that if France leaves the EU, Germany will be holding the bag (probably an empty one) supporting the rest of the EU’s troubled countries.

I can imagine before the EU goes away, that the ECB will have a lot to say about it. The question is, do they have enough fire power to stop it?

I don’t want to disappoint you. I really don’t have answer. I just cannot imagine this happening. But the same was said about the Brexit vote and when Trump was on stage competing against 15 other candidates. You just “never know.”

One thing is for sure, if the EU does break up, the demand for physical gold will be off the charts and no one knows how high the price will be or if there will be enough product to go around.

As my wife always tells me: “Be careful what you wish for.”

Oh, by the way if you have access to the Wall Street Journal on page b16 is an article on gold that is worth reading. If you don’t have access to it, it kind of summarizes why gold rallied
yesterday off a weaker dollar and political uncertainties. The Journal indicated that since Gold is traded around the world in dollar terms, which in turn a softer dollar will always attracts oversea gold investments.

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