This morning ahead of the G20 meeting we see the price of Gold smack dab in the middle of our trading range from $1,212 to $1,232.
A stronger Dollar Index is keeping the price of Gold from catching a bid.
The price of Palladium continues to march higher setting a new all-time record high. At the time of this report, spot Palladium was quoted $1,195 at $1,201. As supplies tighten further, we see the Palladium EFP now quoted minus 31 – minus 27. The last one-month lease rate was quoted at 12 percent.
I never would have imagined that the price of Palladium would ever be higher than the price of Gold, but day after day it seems it is getting ever closer, now just about $ 25 dollar away.
Speculators continue to enter the Palladium market adding 884 contracts in the week to November 20. We witnessed an addition of 428 new contracts to the gross long position now at 17,923 contracts.
According to the latest Johnson Matthey estimates, a shortfall in physical Palladium in 2018 will reach approximately 239,000 ounces. A major Palladium producer predicts that the real shortage will be over 1 million ounces this year. Hence the continued significant rally in the price.
One Wall Street trader I spoke to this morning, ( a guy who has an appetite for risk) indicated if the price of Palladium ever reached parity with the price of Gold he wouldn’t hesitate, buying Gold and selling Palladium in a heartbeat. I guess this guy must have a strong stomach for risk. I find that and interesting trade but almost impossible to manage risk in that spread.
My Take On The G20 Meeting
As I said in Wednesday’s Flash Gage, the President has a perfect opportunity to add to the excitement that was created Wednesday in the Equity and Gold markets. The markets liked the comments made by the Fed Chairman so now all the President has to do to keep the momentum going is to make a deal with President Xi on tariffs.
Sounds simple enough?
But does anyone think that an agreement on tariffs could be accomplished over a dinner and a glass of wine? Really?
Since we all know how the President thinks, I expect he will tell the world that they have come to an agreement and in turn, because they have to sort out their options over time (sort of a work in process) he has decided not to start with a 25 percent tariff rate at the beginning of the year.
If you have been following the markets, you’ve seen that the more there is talk of a trade war with China the stronger the U.S. Dollar has become. Sure you are going to find folks that will call for a higher Dollar when the announcement is made but with a softer Fed on rate hikes I expect the Dollar to decline. A rally in Equities and the Gold market doesn’t happen often but this should be great news for Equities and ok news for the price of Gold in “the short term.”
What I mean by this is, I expect it will only take a day or two before the markets see through that plan to realize that even with kicking the can down the road (so to speak) we are still way away from a solid agreement.
These agreements are highly complex and will take a very long time before either is ready to sign on the bottom line.
I cannot imagine the President leaving that meeting saying that we got nothing accomplished. He sees the gains in the stock market as a barometer to his success as a President. I don’t want to think how the Equity Markets will react if that happens.
Regarding the price of Gold. There are so many traders that I speak with that have cash in their hands ready to enter the Gold Market if we can break thru the $1,232 level. I expect that if the President claims he has a deal, initially the Gold market should catch a bid and trade thru that level. But because of the anticipated rally in Equities, I believe the $1,232 level is not sustainable. If there is no deal at all, you could expect the price of Gold to go thru that level in lightning speed.
The price of Gold has a solid base in place and over the long run I expect the price of Gold to head higher, especially if the Fed softens its policy on raising rates. But unless the President surprises the market with a “no deal” I expect the price of Gold to remain for the most part range bound.
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.