What Could Be Gold’s Catalyst To Push Past $1,100?

The Gold market started the year on solid ground near the midpoint of its year-end trading range, but the question remains: “what will be the catalyst to push gold over the magical $1,100 dollar level and beyond?” Helping solidify the price on the first trading day of 2016 was a combination of Middle East tensions and China’s poor manufacturing data.

As I indicated in my last article, some Wall Street Gold traders are predicting a 15% decline in the price of Gold and Silver in 2016. Before I go back to look for things that will rally this market, let’s try to look into the mind of a Wall Street Gold trader. First the momentum of the market is your friend and for the longest time short gold speculators strategy is to sell any rally.

On Tuesday, San Francisco Fed Governor John Williams said on CNBC that he wouldn’t be surprised to see five rate hikes in 2016. This type of news is soothing to a trader’s ear who has a bearish stance and will likely continue to maintain a short position. Also as I reported a couple of months ago the majority of Gold traders and dealers at the LBMA conference in Vienna last year were calling for Gold to break thru the $1,000 level and some even called for $800 dollar Gold in the coming year.

On the other side of the trade, in my opinion, a five time rate hike is totally out of the question. I believe there is a lot to support my conviction that we will experience higher Gold and Silver prices in 2016. When they raised the Fed Fund rate in December, I wrote in my comments that I believed this was a one and done rate hike. The FED missed so many opportunities
to raise rates earlier in the year and they were under extreme pressure to listen to the media or get verbally destroyed before the next FED meeting. Why, with the world economy still on quantitative easing, are we going in the opposite direction? Is there anyone out there that thinks that the average American is really enjoying the fruits of their labor? For anyone watching the news on television we are constantly reminded that we will soon be in the middle of the most ridiculous name calling / out of control election in the history of this great nation. So to prove my point, here are some of my reasons we will finish this year with higher prices in the precious metals.

  1. With this upcoming election, I’ll bet that if the majority of Americans had a choice of voting for NO ONE, that vote would win the election going away. Uncertainties on who will be in the White House in 2017 should help the Gold price this year.

  2. Now looking at the rest of the world, with the turmoil in the Middle East, is there anyone out there who thinks that in 2016 every one will stop this madness and become friends? Escalating unrest historically supports a bid in gold, especially with so many hot spots bubbling up at once. Name any country out there that doesn’t have major issues on their shores to address. Just look at Monday when the Saudis severed ties with Iran … that may be a foreshadowing of how Gold will react to geopolitical stress in 2016.
  3. Lower oil prices and lower interest rates have helped the gains in the stock market of late and I can’t find anyone to dispute that fact. So while the talking heads on the cable business news networks are predicting that the rally in the stock market may continue, I disagree. Some financial advisors tell me they expect clients will take some profits off the table and look for alternative investments in 2016 – gold is beautifully uncorrelated to the stock market.
  4. Some FED governors have indicated that any future rate hike will be data dependent. Can anyone tell me what data going forward will support another rate hike not to mention more than one?

So with the likely absence of any major rate hikes, escalating Middle East tensions, possible sell off of the equity markets and with the possibility that oil heads higher (for any number of reasons with Middle East tensions rising), it doesn’t seem likely that gold will be trading under $1,000 by year end, as some Wall Street Traders have predicted.

No more witnesses your honor; the defense rests its case.

Have a wonderful Wednesday.

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.