Higher Equities Hit Gold

Higher Equities Hit Gold

At the moment, at these levels, the price of Gold is under pressure from higher equity prices and higher treasury yields. I expect this to be just temporary and a recovery should occur with gold once again trying to break through the next level of resistance in spot at $1,303.

Here is my reason. What I expect will help the price of Gold in weeks to come is the continued
rhetoric in trade discussions between the U.S. delegation and the Chinese negotiators.

A potential, serious headwind to a successful trade agreement is the fact that the U.S. is pursuing the extradition of a senior Huawei executive who is currently being held in Canada.

At the request of the U.S. Government, Canada arrested Meng Wanzhou, Chief Financial Officer of Huawei, the Chinese telecom giant, in Vancouver on December 1st.

Yesterday, a Chinese foreign ministry spokeswoman requested that American officials withdraw their arrest order for Ms. Meng and refrain from moving ahead with the extradition request.

Understandably, her arrest has led to diplomatic tensions between Canada and China.

The U.S. has accused Ms. Ming of using a Huawei subsidiary called Skycom to circumvent sanctions on Iran between 2009 and 2014. Both Ms. Ming and Huawei refute these allegations.

For those not familiar with Ms. Ming, in addition to CFO, she is the Deputy Chairwoman Huawei, China’s largest private company. It was founded by her father Ren Zhengfei. He built the telecommunications titan that employs thousands of engineers with powerful research and development capabilities.

To use a popular U.S. phrase, it would be appropriate to say he’s “one of the boys” in China and a friend to many Chinese government officials. So arresting his daughter for whatever reason might cause problems for the U.S. in its trade negotiations.

Huawei has always maintained that it is a private company, owned by its employees, with no ties to
the Chinese government.

In the weeks to come, without a trade agreement with China, I expect equities to experience another
correction and the price of Gold to benefit from the selloff.

Palladium

The price of Palladium reached an all-time high this month at $1,437 and now, if you haven’t been following the action, the price is now in correction mode. The current spot offer price this morning is quoted at $1,357.

Without a current Commitment of Traders Report available, due to the government shutdown, we will have to go to the open interest in the most active futures month to try and figure out what transpired.

As the price of Palladium hit an all-time high, the open interest in the most active futures contract was just shy of 25,000 contracts. Today the March open interest stands at 22,256. After speaking to some Wall Street PGM traders and looking at the reduction of open interest, it looks like some Commodity Hedge Funds took some profits and reduced their holdings as the Palladium EFP has steadied and some new Palladium supplies emerged in Zurich.

I don’t believe the party is over. Everyone expected a correction especially when the price rallied so fast and in huge numbers. We will continue to watch the Palladium EFP, (currently not moving) for any indication in the change of supplies entering the marketplace.

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.