Gold Recovers A Little Ground

The Market Gage - Dillon Gage's Precious Metals Newsletter

The price of gold is in recovery mode ahead of the Fed decision today, driven by a weaker dollar and lower bond yields. Ten-year Treasury bonds across the globe are all showing softer yields today.

The price of Palladium continues to climb today, but is off the most recent highs reached just a few days ago. At the IPMI Conference in Orlando, which I attended along with a number of my Dillon Gage colleagues, the Palladium backwardation was a topic at many meetings. One concern raised was the amount of open interest contracts seen in the most active CME contract. The September Palladium open interest today stands at 34,152 contracts open. In ounces the equates to 3,415,200 ounces. Currently held in the all the CME Warehouses combined shows only a total of 41,950 ounces of which 13,671 ounces registered and 28,278 eligible. Historically, the majority of this open interest will be rolled or liquidated but as you can see it will not take much for the market to smell blood and react in a way that could be a major concern for the market and the exchange alike.

The backwardation in Palladium continues as the market is quoted today by some as minus 25 minus 10. if you wanted to lease palladium today the current lease rate is quoted by some to be at 15 percent or more. So the tightness of physical ingot continues in London and Zurich with no one really able to put their finger on the reason. Sorry I tried.

The Fed Decision

At 2 pm today, we will hear from the FED on their decision to raise or not to raise interest rates. Currently the CME FED Watch Tool shows the odds of a rate hike at 95.8 percent. In the event the Fed does not raise rates today, I expect the markets to react in a big way. I expect the price of gold to immediately head higher and the equities to retreat. But as you can see by the odds there is only a small chance of this happening. What the street will be looking for is the language going forward describing future rate hikes. Any surprises there I also expect a market reaction to follow.

To Washington

Horrific news all over the wires this morning as Republican House Whip Steve Scalise was shot in the hip along with other Republicans, at a Congressional baseball practice when a crazed gunman began shooting at them for about ten minutes until police arrived. The latest, as this report goes out, is the shooter was shot but apprehended and the latest news reports it seems everyone will survive.

What a world we live in…

President Trump’s Agenda:

What goes through your mind when you purchase a lottery ticket? The average person must think they have a chance of hitting the big one, but in the back of their mind they must really know it’s not going to happen.

Since the Presidential election back in November, the equity investor has been buying stock as if they are lottery tickets with the hope of cashing in big on the President’s promises. They even feel more confident that it will happen as the Republicans control both houses.

Well the first one hundred days (and beyond) have passed and we still are no closer to a Health Care bill or tax reform as we were on the day the President took the oath of office. Yet the Dow seems to break records every day. Even a report yesterday from the NFIB, that represents over 325,000 small businesses, is showing an increase in confidence that a tax bill will happen and bring their businesses to the promised land.

All this enthusiasm for the markets and small businesses while North Korea threatens to Nuke the City of New York.
Yesterday, North Korea said they will launch a missile that will destroy New York City and take millions of lives. And what are we talking about: Jeff Session’s testimony, President Trumps tweet’s and the future of the
former head of the FBI, Jim Comey.

As the clock keeps ticking the “REAL” problems facing our Nation continues to be ignored. The country’s debt
and the entitlement programs are out of control and no one in Washington seems to care.

Are we so naïve that we believe all is well around the globe and here in the States? Or are we just too consumed with the Washington soap opera that continues every day.

Back to that lottery ticket. As the slogan for the New York State Lottery states: “to win, all you need is a dollar and a dream.”

As every day passes, the dream that Washington will be successful in getting everything done that the President promises seems to fade. Right now I expect the Republicans will come up with “some plan” for Tax reform to keep face, but I believe it will be a substantially watered down plan that will cause the equity markets to react in a negative way. After all, the hatred exhibited for both parties is unprecedented and beyond repair so what can one expect.

In the end, It looks like that lottery ticket you bought hoping to get all six numbers right is only going to give you one or two numbers, which is enough to get you a happy meal at McDonald’s.

If this all comes to pass, a reasonable person will see that an investment in physical metals can be a smart choice.

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