Weaker Dollar Sparks Gold Climb

The Market Gage - Dillon Gage's Precious Metals Newsletter

Good news for the Wall Street Gold traders this morning as the price of Gold reached their levels and now they can get down to the Wall Street heliport early and take a 35 minute ride to their homes in the Hamptons.

At the time of this report, August Gold has reached a high of $1,252.00 fueled by a weaker dollar and lower Ten-Year Bond yields across the globe. The dollar index traded as low as 94 overnight, continuing its momentum to the downside and boosting the price of Gold. Will this continue?

I’m not sure, as the $1,252 level the Wall Street Gold traders called for has been met. We will have to keep a watchful eye on the dollar index as the next level of support some traders are calling for are the 93.50 level. But I think I’ll take the other side of that trade and say I believe the market is slightly overbought and will stop right here. But I’ve been wrong before.

Over The Pond

Danger, Will Robertson, Danger!

For those who watched the Television show “Lost in Space” back in the 60s (yes, I’m that old) when things got out of hand the Robot warned everyone that there is a potential for Danger so, “watch out.”

Well, after reading an article in Wednesday’s Financial Times, that just might be the message the EU is conveying. You see, Europe is sitting on over 1 trillion Euros in Non-Performing loans. Now the EU finance Ministers have come up with a plan designed to as they put it “speed up the development of a market for the debt,” in other words, find a someone willing to take these loans off their hands.

According to some analysts, big U.S. investment Banks, including the likes of Morgan Stanley and Citi Group, are showing an interest in taking these loans off their hands.
Low interest rates, and stronger balance sheets here in the States continue to give the banks an incentive to look for higher yields…why not invest in Italy and Portugal’s bad debt? Even private equity groups have joined the bidding for these non-performing loans. After all it’s not their money they are risking, it’s investors’ and shareholders’ money. As I said in the past while reporting on Italy’s banking crisis, if there is a major crisis there, the fallout could reach our shores. This potential activity is a confirmation that, Banks and Investment Funds will search the globe looking for higher yields. In the end the question remains, if the investment doesn’t pan out, “who gets stuck holding the bag?”

London Market News

The new LMEPrecious Metal Future contract seems to be a big hit. In its first week on the London Metal Exchange, LME Gold Futures traded a total of 25,590 lots and 2,556 lots traded in the new Silver contract.

This initiative was started by the London Metal Exchange, the World Gold Council and a group of leading industry players. One must believe that this product was put in place to directly compete here in the States with the CME Futures contracts.

Dillon Gage was invited to attend the introduction meetings in New York City months ago when I reported to our readers their intentions. I am now happy to see they were successful in putting it all together.

For those who are curious, I will try to explain all the features of this new program.

LMEprecious is traded on the LMEselect electronic trading platform where orders are placed electronically, they also offer the option of placing your order over the phone. Trades on LMEselect are automatically and immediately cleared by LME Clear at the time the trade is executed. The difference between placing an order on the platform vs. over the phone is that on the platform, the trades are executed at the time the two orders are placed while with over-the-phone orders the matching takes place when the trade halves are entered into the LME’s system called LMEsmart.

Contract size for the Gold Futures Contract is 100 ounces and 5,000 ounces for the Silver
Futures Contract.

Other features of interest are that participants can trade loco London Gold and Silver as exchange-traded and cleared on daily basis from T+1 (TOM), T+2 (SPOT) to T+25 along with monthly Futures that go out to five years.

Memberships are available as an LMEprecious General Clearing Member, an individual Clearing Member or a Non-Clearing Member.

All members wishing to participate in this program will need to opt-in to access the new precious metal contracts. Also, members that wish to clear LMEprecious will need to have or establish an unallocated precious metals account with a London Precious Metal Clearing Member which will be used to make transfers and take delivery of their Gold and Silver products.

There are five banks currently offering unallocated loco London Precious Metal accounts. They are:

  • HSBC Bank
  • ICBE Standard Bank
  • JP Morgan
  • Scotiabank
  • UBS

By the way if you wanted to know the leading industry participants, they are:

  • Goldman Sacks
  • ICBC Standard Bank
  • Morgan Stanley
  • Natixis
  • OSTC
  • Societe Generale

If you have any questions you can e-mail the LMEprecious team at: lmeprecious@lme.com

Have a wonderful Friday.

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.