We have come to the fork in the road in the Gold market. Helping bring us to this point overnight was the continued sell off of Equities in the Far East and a weaker Dollar Index.
Overnight, Far east Gold Traders are reporting a strong demand for safe haven products and physical demand for Gold is near the top of the list.
As we indicated in previous editions of The Market Gage, the 100-day moving average and resistance level is now $1,229 (it was $1,231 last week) and it has broken thru overnight. So on the technical side, we need to see spot Gold settle above this level today before we can expect the next leg up in the price of Gold to be achieved.
There are a lot of factors right now that are fueling the rally in the price of Gold. Significant geopolitical risks, higher interest rates and oil prices, but in my opinion, the most significant factor is weaker Equity markets.
How We Saw It Last Week
Because of rising interest rates last week, we saw a significant amount of action not only in the Gold market and Equities, but also in Corporate Bonds.
Investment Grade Debt products saw redemptions of over 7.5 billion dollars in the week through October 10th.
With the wild gyrations in Equities, investors pulled over 1.4 billion from their portfolios for the same period as Government Bonds and Treasuries saw significant inflows.
Higher interest rates could affect corporate balance sheets because borrowing becomes more expensive, whether it’s in the form of issuing new bonds or traditional loans necessary to run their businesses.
There are investors out there that are concerned that higher interest rates will reduce corporate earnings and reduce stock prices, so their next move is to look for a safe haven product like physical Gold or Treasuries.
Complicating the picture this time are the tariffs that President Trump has slapped on a variety of imports from China and elsewhere. Those are raising costs for businesses and putting pressure on them to raise prices in response. Overall, tariffs are inflationary and if this continues can only fuel the price of Gold.
I’m done.
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.