Gold Hits Fork in the Road

The Market Gage - Dillon Gage's Precious Metals Newsletter

The price of gold has seemed to hit a fork in the road. The retail investor is nowhere to be found as they listen to conflicting reports and opinions by big bank and brokerage house economists on which way the price of gold is headed. The main reason for all the confusion is the lack of transparency from various Fed officials.

As the dollar continues to flex its muscle, gold continues its downward trend headed to the level everyone’s watching, the $1,300 dollar physiological level of support.

Let’s look at the data on both sides of the ledger so that you can come up with your own opinion. Remember the fork in the road is in front of you and you have to choose the direction of your investment.

Bullish data for the price of gold:

  • Negative interest rates are expanding around the world, making gold in those countries an attractable investment.
  • The US debt continues to spiral out of control and no one is addressing this major issue.
  • Entitlements continue to increase and no politician has the guts to address the problem as they all believe it will be political suicide.
  • We cannot ignore the cost of health care going forward. Seems we are losing the fight for affordable healthcare as the insurance companies and doctors head for the hills, unwilling to participate in plans that pay them peanuts for care.
  • Underfunded state pension plans. The federal government can print money, what can the states do when bankruptcy is their only option.
  • ETF Gold purchases have not seen any significant redemptions, as we view the fund holdings just off slightly from the 2016 highs.
  • The European community still has not come up with a plan to support the continued refugee crisis hitting their shores.

You might not agree will all these bullish comments, but in a global economy we must remember all markets are connected. Any significant news in the world can trigger algorithm programs that can affect any and all markets at the same time.

Bearish data for the price of gold:

  • Central banks cut their purchases of gold in the second quarter this year to the lowest since 2011, said the World Gold Council.
  • Fed Chair Janet Yellen said the U.S. economy is in an expansion mode which in turn gives the FED some ammunition to raise rates soon.
  • The FOMC expects moderate growth in GDP and inflation raising to 2 percent in the next few years (giving the dollar a reason to strengthen consequently lowering the price of Gold).
  • The Chairlady also indicated, based on this economic outlook, that the FOMC continues to anticipate that gradual increases in the federal funds rate will be appropriate over time. The question I continue to ask is, ok when and will the data support her claim?

Data that can swing either way:

  • “The Brexit vote consequences” pushed under the rug for the time being. Could be a significant factor going forward, but it’s too early to tell. Can France and Germany cover the cost to support the whole European community?
  • If you look at both sides of the ledger you will see that in the long term, physical gold will be the investment of choice for many, as the world’s financial condition deteriorates. You just need to be patient and wait for the smoke to clear in Washington
    between the election and any rate hikes.

Where is your entry point?

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.