Up Dollar Pressuring Gold

Market Gage Gold Market Insights

The U.S. Dollar is trading higher this morning keeping the pressure on the price of Gold. Gold is approaching its next level of support at $1,318. Some technical traders indicate that they expect this level to be tested in the next few days, but they also indicate that if tested they expect that level to hold.

Silver specs longs have turned away from the silver market of late as they reduce their long positions giving up on any possibility of a sustained rally in this market. Technical support levels in silver are at $16.32 and $16.19 and are expected to hold the $16.19 level if tested in the days ahead.

The price of Palladium continues to decline as funds totally pulled out of this market as indicated by the open interest down over 10,000 contracts from when Palladium reached its all-time high just a short time ago.

Equities, Derivatives, Washington and the Fed

We have been talking about the CBOE VIX INDEX as the market barometer for increased volatility. Did any one of you ever hear of the XIV? This index was created to give investors an opportunity to bet AGAINST market volatility. So for the longest time, especially with low interest rates and calm markets this index was not moving at all as traders were just collecting premiums. All that changed last Friday and Monday when the stock market plunge occurred. This index sold off leaving a trail of destruction causing some traders catastrophic loses.

No one really knows what kind of impact these derivative products can have on the overall stock market. But one can be sure that if the President keeps removing regulations from Wall Street trade houses and banks the wild, wild West will be alive once again.

It’s difficult to know for sure how large these derivative markets are now. Looking back at the financial crisis some ten years ago, derivatives were a significant part of the problem.

Some market analysts estimate that the derivative market value is 10 times the size of the total world domestic product. According to 2017 data from the Bank for International Settlements, it’s estimated that the total notional amounts outstanding for contracts in the derivatives market is $542.4 trillion. Scary to say the least.

The Treasury Secretary has made a case that with this corporate tax cut, economic growth will expand so much that it will cover the reduced tax income the government takes in. What happens if that doesn’t happen? What happens if the GDP stays below 2 percent and inflation does the same, do you think he will care? He already made his mark on the street helping getting this tax plan thru Congress.

The small bonuses many companies gave out cost each firm less than .0005 percent of their annual profits. And let’s not forget that the corporate tax cuts are permanent, but the individual tax cuts expire in the years to come.

If the economy doesn’t expand or heat up as the President predicts, how in the world can the Fed raise rates? Don’t forget their line: “rate hikes will always be data dependent.”

Today the Atlanta FED revised their prediction for the first quarter annualized GDP from 5.4 to 4 percent. Interesting, since it was their comment last week that caused all the stock market volatility. As I said in the past and always remind everyone, it’s in the best interest for the Fed to keep their comments to themselves between meetings because when they share their thoughts it always seems to have a dramatic effect on the markets.

As in any market, interest rates are a key driver. The price of Gold has been under pressure from a stronger dollar and higher Treasury yields. I expect this to continue in the short term keeping the price of Gold under wraps. But in the next three to five months, if our economy doesn’t expand, Gold will once again be a shining star. That’s why I agree with a lot of gold investors on the street that using a cost averaging buying strategy might be an wise move as part of a balanced portfolio.

Have a wonderful Wednesday.

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.