North Korean Fears Cool – Gold Eases Lower

The Market Gage - Dillon Gage's Precious Metals Newsletter

One can only imagine how much panic buying in gold came out of the Far East Monday night after North Korea shot a missile over Japan. Even our equity markets sold off into triple digits on the news.

Yesterday the yield on U.S. Treasuries got down to 2.0854 and is now back above the 2.14 level. Even the U.S. Dollar was looking for a flotation device after trading as low as 91.62 and is at 92.72 at the time of this report.

Now that the market has discounted North Korea’s actions for the time being and the U.S. Dollar and Treasury yields have rebounded, the price of Gold seems to be looking for a level of support. Many Wall Street Gold traders believe that for the price of Gold to continue its rally, we must stay above the $1,305 spot level. My technical friends who trade Gold strictly on charts, agree.

Obviously the market will react to any news out of North Korea, but keeping a close eye on the Ten-Year treasuries and the U.S. Dollar is the only real map you need to have in your pocket in order to negotiate the Precious Metals landscape.

Turning To Washington

President Trump is trying to stay ahead of his critics by announcing a major push on tax reform next week during speech in Missouri. He is looking for anything to get his agenda back on track as he believes tax reform might be the only thing both Democrats and Republicans might agree on.

The President is hoping beyond hope that there will be no problems on raising the debt ceiling before the end of September. Before the hurricane in Texas, some Republicans said they would vote no to raise the debt ceiling unless some cuts were put in place. Now everything has changed and Washington has no choice but to get to work.

Here’s a story that will get you to scratch your head and possibly get angry

Do you have a government issued flood insurance policy? Currently the National Flood insurance Program is 24 billion in debt and unless Congress acts in the next 30 days or so it will expire.

And now, especially with what is going on in Texas, it is imperative that Washington funds the program. This underscores the point I continue to make. Cut taxes? Where is all the money going to come from to cover all these programs? Is thirty trillion dollars in debt a number that this country will be facing in short order?

That’s why many Wall Street traders agree (and I’m part of that group) that even if the President gets some type of tax reform thru it will be such a watered down version it will not amount to a hill of beans. This country just can’t afford it. That’s one reason why they have bought significant amount of Gold as the market broke thru the $ 1300 level . It will be interesting to see if they will stay in? I expect if Gold sells off below the spot level of $ 1305 the Wall Street Traders will head for the exits accelerating the selloff bringing the price of Gold to seriously test the $ 1300 dollar level.

A note on the Jackson Hole meeting last week

No surprising news to report out of the Jackson Hole meeting last week. It just seemed to me the Fed Chairwoman was saying farewell to all her friends globally as I’m sure she doesn’t expect to be around after her term that ends in February next year.

The Real Story Behind The Headlines

Many dealers and investors were talking about this story earlier in the week, so I though an explanation was in order.

On Friday, some news agencies released a story on the Internet that a mysterious 2 million ounce gold trade was executed just before the Federal Reserve Chairwoman was to speak.

According to the story, twenty one thousand CME future contracts traded just before Chairwoman Yellen was to begin. But what the story doesn’t tell you was that the activity occurred when she released her statement to the news media causing Algorithm programs to execute trades based on their program instructions.

Algorithm programs are designed to execute buy or sell orders as instructed by the programs when specific words hit the wires. Some trade houses, Banks and Funds use this tool to get an edge on the rest of the market when significant news items are released. By the time the average investor has read the news flash the computer program has already executed the traders instructions.

One might say this is an unfair advantage against the individual investor and I cannot disagree. It just makes more of a point that in this era of electronic trading platforms the firms with the most sophisticated trading platforms will have the advantage over their competitors.

That’s why we at Dillon Gage continue to pursue, participate and also report to our clients all the new electronic enhancements being released into our market place.

Have a wonderful Wednesday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. 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. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. 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.