Strong demand for the yellow metal overnight in the Far East. At the time of this report, the price of Gold is up over twenty dollars. I guess we can contribute fifteen dollars out of that rally to strong buying out of the Far East and the last five dollar increase from comments made by the new Atlanta Fed President Raphael Bostic. Time and sales figures can confirm that pattern.
Overnight, the Japan Nikkei was down 4.51 percent. The China Shanghai composite was down 3.39 percent and the Hong Kong Hang Seng was down 2.45 percent. All attributing to the strong rally overnight in the price of Gold.
The Atlanta Fed President was the first to speak after the March rate increase. He said, “If the economy evolves roughly as I suspect, I will likely support further increases over the course of the year. Though I expect that a sequence of further rate hikes will be appropriate over the next couple of years, that view is based on “CERTAIN ASSUMPTIONS” about how economic conditions will evolve going forward.”
Great, let’s all trade on “ASSUMPTIONS.” We will see how far that strategy gets us.
Headlines and The Market
That market is talking, are you listening?
On Wednesday, the Fed raised rates by a quarter percent. As soon as the news was released, the price of Gold declined. Historically, when there is a move in rates, the initial movement after the announcement is caused by headlines that create a knee jerk reaction moving the markets with algorithm programs. Then the majority of the moves are reversed a few minutes later when the details are disseminated into common sense.
This was the first news released:
The economic outlook has strengthened recently. Our interest rate outlook for 2019 is 2.875 percent and we are raising our outlook from two hikes to three in 2019 and our expected rate in 2020 is 3.4 percent.
Initially off those headlines, the dollar and equity markets rallied and the price of Gold declined. The reason? It looked like the Fed was taking a more aggressive stance on future rates hikes and that gave the Equity market the impression that there was real growth in the economy.
It took a few minutes for all that to do an about face. The dollar index declined, the Dow dropped over 200 points and the price of Gold had a healthy recovery.
Then when all the news was taken into account and the Chairman shared his thoughts, it was evident the Fed’s “forecast” was carrying a bigger punch than the actual data.
A possible trade war and increasing debt for both individuals as well as our country is creating a cloud of smoke for the equity markets. And coming out of that smoke is a herd of bulls.
The Fed Chairman said the job market remains strong, but we DON’T see the productivity or wages increasing at a rate now to guarantee further rate hikes. Fed target rate for inflation is still 2 percent; we are getting closer, but we are not there yet.
If you read between the lines the Fed Chairman is saying we have raised interest rates on the data we had “now” and will try to give you our forecast going forward, but unfortunately Mr. Chairman, the market really doesn’t trade on the actual data as much as it trades on your “forecasts.”
So it appears that the worries of a trade war and out of control spending by our friends in Washington is starting to put holes in the Equity market rally and over time the price of Gold will be the benefactor of such continued negative news.
Just wanted to add a little footnote. The CRB index over the last three months is up over 4 percent, indicating that commodities are starting to see some interest as the equity market rally loses steam. For those not familiar with the CRB Index, the index comprises 19 commodities: Aluminum, Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Lean hogs, Live Cattle, Natural Gas, Nickel, Orange Juice, Silver, Soybeans, Sugar, Unleaded Gas and Wheat. It is known as the Thomson Reuters/Core Commodity CRB Index.
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.