Special Edition- Gold and Silver Under Pressure

The Market Gage - Dillon Gage's Precious Metals Newsletter

The price of Gold and Silver under extreme pressure because of a much stronger dollar this morning.

A 25 basis point hike and the indication that there will be three more rate hikes in 2017 has really crushed the longs overnight. Previous strong physical buying in the Eurozone dried up in an instant as more sellers than buyer were reported.

The dollar index overnight reached a 14-year high and the Euro reached its lowest level since 2003.

Much higher bond yields also hitting the metals with a knockout punch. Ten-year yield treasuries hit a high overnight of 2.64 percent.

The gold ETFs yesterday saw very strong redemptions, down almost 400,000 ounces. At this moment our markets just look like a fire sale.

Even Ms. Yellen’s somewhat conservative comments did nothing to calm our markets after the comments were shared with the press. The consensus from the Voting Members of the FOMC seems to be let’s just keep raising rates till we get to normal which the Chairwoman said was a FED fund rate of three percent.

We all know that the Ms. Yellen is a dove and her outlook for future rate hikes will be data dependent. With the strong backlash from her peers, it looks like she will be under the gun to go with the crowd.

Nonetheless. the market is indicating that in 2017 much higher interest rates are in the cards. But if you remember in December 2015, when the Fed raised the rate 25 basis points, some Fed Presidents were calling for 5 rate hikes in 2016 which we all know never materialized.

The difference this year is the “TRUMP PHENOMENA.” It’s really too early to tell how his policies will affect the dollar and interest rates going forward.

The equity market exuberance is something we have never witnessed before. The question is, where will this end? The buying frenzy is at such an emotional point, it seems common sense and fundamentals are being ignored by the majority of equity investors.

So let’s stop, take a breath, remove the emotions and look at the total picture. Where do go from here? First of all, it seems that both the equity market and the precious metal market got ahead of themselves. Now that the Fed decision is out of the way, it’s time to relax and focus on what we can expect from the markets in 2017.

The next Fed meeting is not scheduled till February and the CME WATCH tool gives the chance of another rate hike at only 6 percent. The next meeting after that will be in March and the CME WATCH Tool gives
the possibility of a rate hike then at 25 percent. A possibility of a rate hike in May at 33 percent and I share one more in June at 51 percent.

So my take is, without more definitive information on future rate hikes and what affect Trump’s policies will have on our economy, it’s time for the price of gold and silver to settle down.

We have taken a big blow to the head, now it’s time to shake out the butterflies, settle down at these levels and give the market some time to reevaluate where the price of gold and silver should be.

Have a wonderful Thursday.

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.