The combination of a stronger dollar, higher treasury yields and a triple digit opening for the Dow has put pressure on the price of gold this morning.
Also Japan’s second quarter Gross Domestic Product grew at an annualized rate of 4 percent in the latest numbers released this morning. This report has also helps stocks here and abroad.
For the time being this news puts in a sell signal for the yellow metal. Silver seems to holding its own staying above the $ 17 dollar level but well below the 200 day moving average a level that everyone was hoping for to get the price of silver to rally higher.
With no new news out of North Korea and no missiles fired, safe haven investors have turned their attention back into equities for now. But we all know that can change in a heartbeat if there is any more rhetoric between President Trump and Kim Jung Un.
Thank you China
It couldn’t have come at a better time! What I’m referring to is China’s statement released Friday morning that said, “If North Korea fires any missiles at the United States, Guam or any US allies we China, will take a neutral stance. But in the event the United States attacks North Korea in a pre-emptive strike we will have no choice but will have to intervene.”
If you watch the market activity like we do here at Dillon Gage you would have seen the CME Future market volume pick up and the price of gold sell off right after China’s comment hit the news wires.
At that point the news was enough to change the mind of many Wall Street gold traders as they were looking for further rhetoric from either side expecting for the conflict to escalate. But when this story came out it was enough for them to take small profits off the table and sit tight for the time being waiting for their next opportunity.
Cash Transactions Over The Internet
I’m sure you remember our report on Cryptocurrencies and how many expect this mechanism to catch on in a big way. In a story released on Friday by Fox news might give the Feds some ammunition to put a damper on these kind of transactions or at least lead to the call for greater oversight.
Fox reported that U.S. investigators uncovered a global financial network run by a senior Islamic State official that funneled money to an alleged ISIS operative in the U.S. through fake eBay transactions, according to a recently unsealed FBI affidavit.
The alleged recipient of the funds was an American citizen in his early 30s who had been arrested
more than a year ago in Maryland after a lengthy Federal Bureau of Investigation surveillance operation that found the first clues to the suspected network. The government had alleged in a 2016 indictment that the American suspect, Mohamed Elshinawy, pledged allegiance to Islamic State and had pretended to sell computer printers on eBay as a cover to channel payments for Islamic State through PayPal, potentially to fund terror attacks.
I’m sure these kind of stories will lead the Fed to try to regulate Cryptocurrencies in order to deter terrorist activity. Nonetheless, you can be assured that I expect that even with government monitoring Cryptocurrencies, the market will continue to grow.
VIX View Of Market Risk
If you are looking to get a pulse of what Wall Street is thinking there is no better barometer than the Chicago Board Option Exchange Volatility index. To keep this description as simple as possible, the CBOE Volatility Index shows a picture of expected market volatility. It uses the price of options on the S&P 500 and then estimates how volatile those options will be between the current date and the option expiration date.
Basically the CBOE Volatility index takes a weighted average of all these options prices in the S&P 500 index and derives a single number that is called the VIX (VIX is the ticker symbol for this Index). There is no way to trade the VIX directly but the CBOE does offer VIX options.
The VIX, also known as the “fear gauge” as it measures investors’ perception of market risk, spiked 44.4% in last Thursday’s trading session. This suggests that investors have started to panic. The fear index was up 61.5% from Tuesday thru Thursday last week, during the same time Gold was in rally mode.
Why I’m bringing up this topic in this report is that last Thursday VIX options volume was their largest in the history, trading 2.6 million VIX contracts in one day.
I’m sure you are asking yourself, I trade metals why should I monitor the VIX? Here’s why. When investors are afraid of the equity market like they were last Thursday, thinking we were on the brink of a conflict with North Korea, they usually sell stocks. This causes a surge in volatility, which causes the VIX to rise. When investors are confident in the market they buy stocks which causes the VIX to fall.
When the volatility raises we usually start to see a rotation out of stocks and either into Bonds or Precious Metals as a safe haven. After China’s comment the VIX index levels seemed to calm down and gold has sold off somewhat. This is just one more tool we here at Dillon Gage use to keep our clients informed on potential market direction.
Have a wonderful Monday.
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.