Gold Up A Bit On Slightly Weaker Dollar

The Market Gage - Dillon Gage's Precious Metals Newsletter

We start the week with gold up just a little, off of a slightly weaker dollar and softer treasury yields.

The prices of both gold and silver seemingly in suspended animation looking for some news to give the price a direction to head into.

One might not argue that the equity markets are experiencing the same dilemma.

Wall street gold traders continue to be on the sidelines because of the lack of volatility.

Overnight both gold and silver ETFs showed redemptions.

Without any other news to report let me share with my readers the reason, in my opinion, we are in this situation in the first place.

At least there is one person at the Fed that makes some sense.

Before I reveal that person’s name, I have to share with my readers my frustration. What I don’t understand is how the Fed Chairwoman can say, “the data has NOT noticeably strengthened,” and at the same time say that, “future rate hikes will be data dependent” ? She then followed up with, ”there will be THREE rate hikes in 2017.” Can someone tell me what I’m missing?

These comments move the price of gold in unpredictable ways. Just look at last Wednesday. Yes we all expected a 25 basis interest rate hike. Ok, no argument there. But where did the market get the impression that four rate hikes were in order? Is it possible the market was looking forward to a continuing equity rally in 2017? Or did the market just base it on how many more Fed meetings this year that one could anticipate a rate hike? Or did the market get it from one of the Fed voting members at one of their “why in the world are you saying anything about future rate hikes” press conferences?

As soon as the Chairwoman revealed a dovish tone in her comments the price of gold reacted as IF there will be “NO” more rate hikes this year and traded up $30 dollars on the news. So in reality, her comments caused a firestorm. The shorts, and there were many who read the tea leaves so-to-speak, had to cover in an heartbeat. How can any trader or investor predict these kind of market movements?

What is this world coming to? What ever happen to supply and demand issues that used to move the price of gold. Has the media and politics taken over so much that a smart, informed investor has become clueless and helpless, set up by the FED to dictate whether their investment will make money or not?

Before I give you the name of the only person who seems to have any clue, let me give them a fix to this problem. To give every trader and investor a level playing field to conduct their trading strategies, here is my take on what should be done:

  • First and foremost stop immediately any voting or non-voting members between FED meetings from sharing their options to the media at a press conference or any other function for that matter. Basically imposing a gag order on all members.
  • Second, let the Fed minutes speak for themselves. That would work well for everyone to understand what really happened behind closed doors.
  • Third, let the Chairwomen be the only person at the FED to share the opinions of all after any scheduled Fed meetings. And last tell the FED not to be too concerned about their reputation, it cannot
    get any worse.

Now, thank you for waiting. The person I’ve been alluding to is…Neel Kashkari, Minneapolis Federal Reserve Bank President. He was the lone dissenter at the last Fed meeting. His position was to hold rates steady because, as he put it, “the U.S. economy is still falling short on employment and inflation.” What makes total sense to me is where he indicated the Fed should wait to raise rates until it publishes a detailed plan for how and when it will reduce its 4.5 TRILLION balance sheet. One doesn’t have to have a degree in accounting or economics to believe that this statement makes sense. He also indicated that inflation is still short of the Fed’s mandate of 2 percent and that the labor market is still showing signs of slack, so keeping the rates steady would have been the appropriate move.

One must know that any change in rates has a profound effect on all Americans. For the ones trying to buy their first home or for the ones trying to pay down their credit card debt. Before any decision is made, we should be at close to or full employment and see wage growth for all. From the minimum wage worker to the average American trying to get by from paycheck to paycheck, these considerations should be first and foremost. Yes it might sound like I’m running for political office, but if the Fed would close all the text books and look out the window they might have a better understanding where America is today.

I feel better now.

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 advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.