Gold Treading Water

Gold Treading Water

This morning, the price of Gold is seen treading water at $1,276 right in the middle of two levels. Support at $1,260 and the new resistance level
of $1,282.

A stronger Euro is putting a little pressure on the Dollar keeping the price of Gold in positive territory.

The U.S. Dollar and the Price of Gold

A strong Dollar is a sign of America’s strong economic outlook.

When the U.S. has stronger growth than, for example, the EU countries, the Dollar tends to rise because people want to make investments in the U.S.

Conversely, as economic challenges worsen over the pond, the investment outlook can reduce the demand for local currency as indicated in a slowing economy.

Political-economic turmoil in Europe — such as the Brexit issue — tends to
push the Euro and the Pound Sterling down, in turn strengthening the dollar.

Unfortunately, as a Gold investor we can’t have it both ways.

What I mean by that is, as the U.S. economy grows and the rest of the world economically declines, it will have a direct effect on the price of Gold, because globally the price of Gold is traded in Dollar terms. Currently, with the lack of any significant news that would pressure
equities such as weak corporate earnings or an aggressive Fed policy, the U.S. Dollar continues its strong posture.

How the Long-Term Gold investor Wins in the End.

A strong dollar tends to grow the trade deficit by making U.S. exports more expensive for foreign consumers, while making it more attractive for Americans to buy imported goods. A price drag on our exports is not weighing too much on the U.S. economy right now, because domestic demand has stayed strong.

Last year’s big tax cut has moved the Dollar up in a couple of ways. First by providing a short-term growth boost by raising the deficit, and second, by lowering corporate tax rates and therefore increasing the after-tax rate of return on investments. The strong economy has encouraged foreign investment in the U.S. Unfortunately, that tends to strengthen the Dollar, because foreigners need to obtain dollars to make those investments.

Right now, the Dollar is strengthening mostly for good reasons that reflect U.S. economic strength, though the additional borrowing that was used to finance the tax cut is truly a concern, which could mean we are trading somewhat higher economic growth NOW, for slower economic growth for years to come.

Due to out-of-control government spending and a ballooning U.S. debt, there WILL come a day of reckoning.

At that point, the holders of physical gold will be happy they hung in there. And as I always recommend, if you are a long-term Gold investor a Dollar cost averaging approach should pay out dividends in the end.

Have a wonderful Wednesday.

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.