Gold Slips as Dollar Grows

Gold and Silver Market Insights

Market Headlines for this morning:

  • Gold prices lower as U.S. dollar and Treasury yields increase.
  • U.S. tariffs on Mexico, Canada and EU take effect.
  • European markets higher after Italy forms new government.
  • Global bond yields rally as Italy ends deadlock.
  • 6.4 million jobs open here in the U.S. looking for new employees.

Recently Gold prices have been hovering around the $1,300 dollar level. Some traders were expecting a selloff in the price of Gold after Italy formed a new Government.

Gold traders will be watching to see if there are any retaliations from other countries after the President imposes trade sanctions. These actions may cause some investors to see Gold as safe-haven and could lift gold prices.

My Gold technicians say they will exit the Gold market if the price breaks thru the $1,285 level. If you remember they entered the market there last week. Support levels still seen at the $ 1285 level. It is their belief prices should be well supported at that level.

Algorithms and Market Speed

I realize it’s been a while since we witnessed a big move in the price of Gold. But when it happens, did you ever
wonder how and why the price moves so fast? There are times in the past we witnessed a thirty dollar move in the price of Gold in less than five minutes.

I can assure you it’s not a retail client buying ten Gold Eagles or a dealer selling one thousand Gold Maples.

In the old days, there were floor brokers conducting open outcry transactions on the commodity floor in New York and Chicago. For the most part, orders were given over the phone to a phone clerk who shouted out the order to the broker in the pit. The phone clerk kept the client updated where the bid and offer were being quoted. If the order was filled ( executed ) the phone clerk reported what happened to the person on the line. If you were fortunate enough to get a chance to witness this controlled madness in this small pit you would have walked away scratching your head trying to figure out how at the end of the day could everyone agree what was transacted.

To move a market thirty dollars back then, it would take considerably much, much longer than it does today and a move like that would cause massive chaos in the pit.

But today with the electronic platforms in place it’s very easy and orderly to have a move of thirty dollars in a short period of time. Orders can be placed easily at different levels and the size of the order doesn’t matter at all.

What has a major impact in many markets and especially in the Gold market are algorithm programs. These programs are set up by programmers that are instructed to execute traders strategies to react to certain news events or market movements in other products like financial instruments. The program will execute buy or sell instructions in a blink of an eye as soon as the strategy is triggered by an event.

Algorithms are used for calculation, data processing, and automated reasoning. Whether you are aware of it or not, algorithms are becoming a ubiquitous part of our lives. Some pundits see danger in this trend as more and more computers take over the thought process of humans.

Rather than only following explicitly programmed instructions, some computer algorithms are designed to allow
computers to learn on their own. So now we need to add a new word in our trading tool box. AI or Artificial Intelligence. AI is defined as the theory and development of computer systems able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.

Starting to feel a little uneasy? I am. Just trying to comprehend what this all means?

What comes to my mind, is there a danger of just one AI algorithm computer program capable of causing disruptions
to markets that can cause chaos? As more and more programs use AI, what will become of human logic or common sense
in reacting to market movements?

All it will take is one trigger, which could possibly cause a financial calamity in financial markets across the globe. If left to the computers to think for humans, these trading strategies are destined to fail miserably.

I have a tough enough time thinking for myself. The last thing I need is a computer thinking for me.

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.