Gold Retreats From $1,300 Overnight in Far East

Gold Retreats From $1,300 Overnight

In any healthy market rally, pull backs are expected before the rally continues and the price of Gold is no different.

Overnight in the Far East, the price of Gold broke thru the $1,300 level in the February Futures contract. One Far East trader indicated that he believed the market was looking for stops at the $1,300 level. When it didn’t materialize the market sold off.

Currently, Global Ten-Year Bond prices are lower and the Dow is expected to see a strong open so it’s no surprise that the price of Gold is off a bitinvest in the Gold market on a dollar cost averaging basis.

The Financial advisors we speak with continue to advise their clients to diversify part of their portfolios and invest in the gold market on a dollar cost averaging basis. The clients who took their advice a few months ago have benefited from a Gold market that’s up over one hundred dollars in just a few months.

Chinese Economy and Gold

As indicated in the release of Decembers PMI report the Chinese economy is slowing more than anyone expected.

But there has been some indicators of a slowdown before this trade war started. In the middle of 2017, the World Bank came out with a chart showing that in 2016 China grew only 1.1 percent. That is consistent with the single most reliable indicator of Chinese economic activity, energy consumption, which according to officials grew only 1.4 percent in 2016. There are some economists that now claim the Chinese economy is contracting.

According to all reports, official and non-official, Chinese manufacturing in December virtually fell off a cliff. So at this point, the U.S. is in a better position to negotiate, because the only thing that can save the Chinese economy is a trade agreement with the U.S.

On Wednesday, U.S. Trade Ambassador Robert Lighthizer said that we should increase the tariffs. At this point, do you think it’s a good idea that we tighten the noose (so to speak) on China to force them to agree to our terms?

Public comments like these only make it more difficult for an agreement to be reached. And these types of comments only put more pressure on Equity Markets, something investors don’t want to hear. Reminds me of comments made by Fed Presidents between meetings that disrupt markets. These types of comments need to be reeled in and stopped.

The longer the Trade War with China continues the more uncertainty it brings to equity markets. U.S. corporations are already feeling the impact of higher tariffs and the longer it takes the worse things will become. I’m not sure this is a wise move.

Something has to be done to move these negotiations along. Do we need to put on more costs whether they are increased tariffs or import bans? This stalemate cannot not go on indefinitely. Even the 90-day window is much too much for the equity markets to absorb.

Just yesterday, the December ISM number was released. It showed the steepest decline in manufacturing activity in ten years and it didn’t take long for algorithm programs to kick in and send the equity market to its knees. The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute for Supply Management (ISM). The ISM Manufacturing Index monitors employment, production, inventories, new orders and supplier deliveries.

As this Trade War deadlock goes on, it will continue to attract investors into the gold market, as we have seen when the price of Gold last traded on the lows a few months ago at $1,161. Since then, we have seen a substantial rally in the yellow metal and a considerable sell off in equities. We cannot say the same for the other three metals as their prices have been directly affected by weaker Equity prices.

Have a wonderful Friday.

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.