Gold Still Hung In Trading Range

Market Gage Gold Market Insights

The equity markets are turning a blind eye to all the political news and are waiting and watching for more corporate earnings to be released this week. Equity markets are feeling confident that strong corporate earnings will keep the bull market afloat.

In turn, the price of Gold continues to stand in place as investors and traders are attracted to markets with more volatility. The CBOE VIX Index that tracks market volatility is showing little movement indicating that investors are pretty confident that there is nothing in the marketplace in the short term that can crush equity prices.

Metal traders will be watching the 89.35 level in the dollar index as a breakdown below that level should support higher gold prices.

A Closer Look at U.S. Mint Sales

How strong are U.S. Mint sales in 2018? Unfortunately, the mint hasn’t had much use for the word “strong” since the record-setting year of 2015 moved 47 million Silver Eagles.

Sales have progressively decreased from that year as 37 million were sold in 2016 and 18 million were sold in 2017. This year the U.S. Mint is on pace, if things go well, to sell approximately 14 million Silver Eagles.

Secondary market sales otherwise known as “buybacks” have flooded the dealer market in both the U.S. Silver Eagles and U.S. Gold Eagles.

Additionally, U.S. Gold Eagle sales in the first quarter this year are off a whopping 65
percent from just last year.

We continue to see equity investors selling their physical Gold and Silver to buy Equities, as dealers continue to lower bids. And the saying you hear over and over again from dealers is
“I just can’t take on any more product.”

But I believe the worst is almost over as secondary market premiums, or in some cases discounts, below spot have flattened out.

The good news is that even with all the negative news that the Gold market has been hit with, the rug has never been pulled out from under it.

Range bound has been the description of the activity in the price of Gold. And the Gold Silver ratio has widened out due to the significant amount of refined Silver being offered into the marketplace.

This past Thursday, I attended the Thompson Reuters conference on the release of the 2018 world Silver survey. The presenter showed charts on how much of a difference there has been in the last couple of years in the amount of silver ounces produced vs. the investor consumption.

To use his analogy, he said, “Silver is not an agriculture product where it is produced, consumed and grown again. Silver as a byproduct is produced and unless there is investor interest in the market the ounces just build up and buildup.”

Case in point:
CME Warehouse stocks have increased to over 263 million ounces as refiners struggle to find a home for 1,000 ounce bars.

So in other words, it seems it will take some time for the secondary market inventories to sell off before the U.S. Mint can once again consider running a second shift at West Point to keep up with the demand.

I expect the end of the third quarter this year to see the start of a strong bull market in Precious Metals as the U.S. Economy starts to feel the pain of higher interest rates and comes to a screeching halt. Individuals will just stop “I hope” buying goods on credit and start to realize that they cannot operate like the politicians in Washington do, spending more than they take in.

There are conflicting opinions I am hearing from other Gold traders who claim higher interest rates will hurt the price of Gold. I’m on the other side of that argument, because the street knows what the Fed is planning and the price of Gold has not reacted negatively to the news, so why then should the Gold market take a major hit when it actually happens?

So if you don’t mind me ending with the saying that news reporters use before a commercial break, “Stay tuned.”

Have a wonderful Monday.

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.