Loose Lips Sink (or Float) Gold

The Market Gage - Gold is Elemental

It’s time to speak out.

After 42 years in the Precious Metals business, it finally hit me why I’m losing my hair. There is a simple reason, I’m scratching my head too much.

What moves a market some days is total propaganda. Whether it’s our Fed Chairman or Fed Chairwoman testifying on Capitol Hill or a Fed President sharing his or her opinion on a cable business news channel, their opinion doesn’t matter any more than a person on the street.

Why predict four rate hikes instead of three and move the stock market (and affect many other markets including our Gold market) with your comments?

The whole world realizes that interest rates are the main driver for every economy.
Mortgage rates, credit card rates, business loan rates, interest costs on the country’s debt and thousands of more items are controlled by what the Fed determines is a justified Fed Fund rate.

When these folks say things that the markets don’t expect, the markets move in a direction that’s totally unjustified. WHY is it unjustified? It’s simple, it’s just talk. I’ve said this many times before, there is no reason to say anything between Fed meetings, NONE. We all know that any action the Fed takes will be data dependent. So if you don’t have enough data at this time and you’re not in a Fed meeting preparing to make a rate decision, why say anything?

The newest impactful rhetoric was stated by the President yesterday. His statement that a trade war is “a good thing” also had a profound effect on the markets. Earlier in the week, the price of gold took it on the chin after the new Fed Chairman said he believes four rate hikes are expected this year. Bad news for the price of Gold. Now our President comes out and says he will impose import tariffs and the equity markets decline and Gold becomes a safe haven again. Good news for the price of Gold.

All in one week, two totally different news stories create wildly unnecessary market volatility.

As an investor and trader, I take offence to their comments because they have no substance until the rates are increased or a bill is passed. Until it becomes law all they do is disrupt the markets in a direction that’s totally unjustified without any data to back it up. It’s difficult enough to try to analyze the direction of the market using fundamental data and technical levels without their comments polluting the waters.

On Wednesday, I received a call from a Reuters reporter asking me if I can explain why the price of Gold is up when we see a much stronger Dollar and higher Ten-Year Treasury Yields? One would expect the price to be much lower off that “data.” A good case in point! The Fed Chairman’s comments moved the price of Gold lowerTuesday
and now the market is oversold so even with that data the market is not reacting as it should, it’s up.

What can we do? As the saying goes, “Two things are certain, death and taxes.” And now, maybe I can add a third…opinions?

The President and Fed members will always offer their opinions even if they are not asked. They just can’t help themselves.

In the end, I guess the best advice I can offer is not to trade off the rhetoric because in a few days we will be right back where we started from.

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.