Gold ETFs Help Gold Keep Bid Posture

For over two weeks now Gold ETF holdings have increased in a big way, helping gold keep its bid posture. The question now remains, with the dollar steadying, will the retail investor continue to support the gold price by buying more shares?

What I find interesting this morning is just before the unemployment number was released at 8:30 am eastern time, gold was up $ 1.00 for the session. And as soon as they posted the unemployment rate at 4.9 pct. the market sold off six dollars. This tells me that computer trading known as algorithms are prevalent in the marketplace. Key words after news is released can affect the price as it seems to have done this morning.

Case in point – Week in review:

  • Tuesday – Kansas City FED President Ester George states that gradual rate hikes are in the cards.
    Result: Gold market sells off on the news. Higher rates, lower gold prices.
  • Wednesday – New York FED president William Dudley says short term interest rate increases are now a considerable concern for the FED. No rate hike, higher gold prices.
    Result: Gold market rallies in a big way.
  • Early this morning – we witness the gold rally continuing from the past two days off of Dudley’s comments. And here comes the strong unemployment number. This news gives the impression that the FED might have some ammo to raise rates. Higher rates lower gold prices.
    Result: Gold sells off, now we are down $ 11 dollars in today’s session.

See a pattern?

Is the price of gold now driven by computer programs developed by big institutions? Whatever happened to supply and demand issues?

How does a person trade or invest in this market when a single word by a FED president or a government report changes the direction of the market in a split second?

Now that the news is out and absorbed, I expect we will now witness the true direction of the gold market.

The good news is we are still up $25 dollars from when Ester George felt compelled to put her two cents worth of comments into the marketplace. So I believe the key for the next few days is to watch the trading activity in the U.S. Dollar. That activity should be an indication of where the price of gold will trade in the near term. Lower Dollar = higher gold prices.

From snowy New York, have a wonderful weekend.

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.