Precious Metals Markets Watching For Release of Fed Notes

The Market Gage - Dillon Gage's Precious Metals Newsletter

All eyes on the Fed today as they release the minutes from the January 31–February 1 meeting at 2 pm today.

Since the meeting, the usual “unnecessary” comments were shared by different Fed Presidents that a rate hike should happen sooner rather than later. Chairwoman Janet Yellen said last week that the Fed would consider rate hikes at upcoming meetings. Nonetheless, the odds of a rate hike at the next Fed meeting in March according to the CME FED WATCH TOOL today, before the minutes are released, is only at 18 percent.

Looking ahead, if they don’t raise rates in March, the chance of a 25 basis rate hike jumps to 40 percent at the May meeting and a 46 percent chance at the June meeting.

Hardly convincing numbers that a rate hike is imminent.

Some of the Wall Street gold traders I spoke with this morning are comfortable holding on to their long positions in gold as most believe higher prices are in the cards, but they believe it will be slow going. One trader said, “I’m long from the $1,220 area and the only thing to derail my position will be a surprise rate hike at the March Fed meeting. Otherwise I’ll just sit back and wait and see how it goes.”

I think the more important agenda for the Fed participants should be how and when do we start reducing the Fed’s balance sheet. If the Fed group believes the economy is on the path to a strong recovery, then raising interest rates and reducing the balance sheet should be a top priority. Just 8 years ago, during the financial times we’d like to forget, the Fed bought a huge amount of mortgage backed securities and Treasury Bonds to reduce long term interest rates, but I still want to see convincing economic data before I can cheer them on.

On another note, the Gold and Silver ETFs saw small inflows overnight.

With the Dow, Nasdaq and S&P kind of steady to a little higher of late, all markets including our markets are searching for some news to drive the future direction in prices.

During the next couple of months, Gold investors need to watch the upcoming EU elections very closely. I expect the landscape to be quite different after the German, French and Dutch elections are decided. As I indicated in my previous comments, the next tsunami in the price of gold will come from over the pond with the possible breakup of the European community. If Germany or France has upsets like the U.S. election just experienced, another EU defector could be right around the corner. That could be the end of the European community as we know it and cause a very interesting currency crisis. One would believe if this happens, gold will be the recipient of monumental gains.

One thing is for sure, before this happens the powers that be will fight tooth and nail to derail any breakup, but even if they stay together with tissue paper, the threat will be great enough to support much higher gold prices in the future.

Back from a short break in sunny Florida I wish you all 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 advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.