Weaker Dollar Makes for Firmer Gold

The Market Gage - Dillon Gage's Precious Metals Newsletter

As we start a new week, the price of gold is seen a little firmer due to a slightly weaker dollar and softer treasury yields. But overall, our market is looking for a direction, whether it will come from a declining equity market or a declining dollar we will just have to wait and see.

As I indicated in Friday’s comment, gold investors were hoping for the spot price of gold to settle above the $1,300 dollar level as an indication that there was more room to the up side, but strong selling emerged and stalled the rally.

Still, on the minds of many investors is the status of White House aide Gary Cohn. In the event he decides to pack it in, the equity market will view that as the straw that breaks the camel’s back and take away any chance for individual and corporate tax reform this year. Most Wall Street analysts expect a strong stock market correction to follow, sending many investors into bonds and metals.


Have you ever heard of the Hindenburg Omen. If not, let me introduce it to you, because it’s back.

The Hindenburg Airship crashed over 80 years ago, and the technical pattern the equity market has just witnessed was named after it. Now the stock market is experiencing a re-emergence of this phenomena. This past Wednesday, there were more stocks hitting 52-week lows than 52-week highs on the New York Stock Exchange.

Let me try to explain. This event usually leads to poor returns in the forthcoming days and the last time this trend poked its head up in Nov 2007, stocks fell by 1.6 percent in the following week and 2.3 percent two weeks later.

Good for the price of Gold if this happens, but not your 401k and other investments. Surely we would expect a rotation out of stocks and into metals and bonds as a safe haven if this occurs…

Experts say this is not necessarily a signal to cash in your stock portfolio, because back in May of 2015, when the Hindenburg Omen last showed up, it turned out to be a false alarm. But five out of the last six such omens coming true might be enough to get your attention especially in the crazy world we live in now.

I thought my readers would find this story interesting and would be fun to watch over the next week or so.

Across The Pond – The Upcoming German Election

Six weeks to go before Germany’s parliamentary election. According to the most recent polls Chancellor Angela Markell is enjoying a comfortable lead ahead of her main challenger, Martin Schulz. All expect her to win the September 24th vote and secure a fourth term.

However, many supporters caution her not too get complacent, saying the vote is still six weeks away and want her to continue to rally her supporters.

Ms. Markel tells Germans that they, “live in the best Germany ever.” But there are many folks who feel that since she’s been in office, things for the middle class have deteriorated. As here in America, many Germans are asking for social equality as the difference between the rich and the middle class has widened under her leadership. Germany’s income gap between the poorest ten percent of Germans and the richest ten percent had started in the mid-1990s.

Marcel Fratzcher, President of the German Institute for Economic Research said, “The top 10 percent have a very concentrated grip on wealth, often productive wealth, which grows from one generation to the next. The bottom 40 percent have nothing.”

Germany is a rich country, with the highest income per person ahead of France and the UK. Unemployment is the lowest in the Europe Union at 3.8 percent.

Germany’s poverty level has risen despite a drop in joblessness. Germany’s Institute for Economic Research claims the economy is doing well but the big concern is about the people who are being left behind.

In a recent interview, Ms. Merkel said, “Inequality is becoming a political issue and I understand many people are concerned.” In the coming weeks the world will find out if she isn’t going to just talk about it, but will put in measures to help those folks before the election.

The Palladium Market

Over the last month Palladium has had a nice run up in price. From a low of $841 to a high of $938.

If you look back to the beginning of the year, Palladium was trading around the $686 level. So from the lows at the start of the year to today’s high where the price hit the $ 938 level, that’s an increase of 36 percent from the start of the year. Not too shabby of a return.

The surge in the price can be attributed to geopolitical issues and a broad-based price rally in other metals, but what catches my eye is the difference between the open interest on the September Nymex contract and the available registered ounces held in the authorized depositories.

Currently, the September open interest stands at 26,639 contracts converted to 2,663,900 ounces and the registered metal held in the depository stands at 91,935 ounces. Currently the Nymex Sept – Dec Palladium switch is trading at a back of $ 8.00 dollars .

As we get closer to the end of the month of August, will the backwardation widen? Earlier in the month the spread narrowed to -$4 dollars. I expect the shorts to roll out to December, but to do that they need to buy the September and sell the December which should increase the price of Palladium. There is always a concern as in any market when the open interest exceeds the available inventory held in the authorized depositories as a squeeze is never out of the question. But you can be sure that when and if the open interest becomes a factor vs. the available inventory held in the depositories the Exchanges will take steps to reduce the amount of contacts you can hold going into a delivery month.

The question remains will that be enough to keep the backwardation within reasonable levels and stop someone from squeezing the market putting the spot price much higher than the December Nymex Futures contract?

Only time will tell, but for sure Palladium is a market being watched by funds, car companies and investors alike and I expect the action to heat up this week.

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.