Slightly Stronger Dollar Keeps Pressure On Gold

The Market Gage - Dillon Gage's Precious Metals Newsletter

We have a lot to talk about today, so let’s get started withtoday’s market information.

A slightly stronger dollar and higher Ten-Year Bond Yields here in the states and in Europe are keeping the pressure on the price of gold this morning.

Outflows overnight seen in both the gold and silver ETFs as the anticipated rally over the 200-day gold moving average got close, but never materialized.

Financial advisors are having a blast with this continued equity rally and not paying too much attention to commodities at this juncture.

Now the meat and potatoes:

Yesterday in a Flash Gage we shared a story released by Reuters, that Richmond Fed President Jeffrey Lacker revealed that in 2012 he shared confidential Fed information with a analyst regarding the Fed’s plan for economic stimulus.

And now five years later he decides to resign. Really? What took so long? The question I keep asking is WHY are the members of the Fed allowed to share anything between meetings at conferences or with the media? In my opinion, this is the main reason our markets lack volatility. And when the Fed shares their opinion between meetings, there are times our market moves in an unexpected way. This keeps traders and investors away from the market because they are afraid that one comment can blow their strategy right out of the water.

I prepared this story on Monday afternoon and was going to use it today as the base of my article, as luck would have it, it fits like a glove to the story above.

An article in Monday’s Wall Street Journal caught my eye and I wanted to share this with you as it brings to light what Minneapolis Fed President Neel Kashkari has been saying needs to be done before the Fed raises rates.

Here is what the article revealed.

This week the world changed. Fed Chair Janet Yellen apparently allowed a LEAK to the Wall Street Journal, published on March 31st, suggesting the Fed understands the problem. The Fed is taking off the table the idea there might be four rate hikes this year (remember what a firestorm
that theory was causing in our markets), but is putting on the table the idea that it will eventually pause on rate hikes and start reducing the size of the balance sheet as the normalization process continues.

At this point, the Fed is being slow and cautious and only planning on doing one thing at a time – rate hikes or bond sales. Later it might do both at the same time.

So what should investors expect? According to the Wall Street Journal, before the LEAK, it looked like the Fed would raise rates two or three more times this year, once in June and another time in either September
or December, with the possibility of hiking rates in both September and December.

Now the journal reports that they think the Fed will raise rates in June and September and then take the following six months to start the “Great Unwinding” of the balance sheet. The Journal goes on to say that they expect the Fed will take baby steps. It’s not outright and actively going into the financial markets selling Bonds from its balance sheet. Instead, it will take a portion (not all) of maturing principal payments on its Bond Portfolio (Treasury or Mortgaged Backed Securities) and not reinvest them into new securities, instead using that portion to extinguish excess reserves.

This cautious approach will not disrupt the bond market, but it will allow inflation to become more entrenched. The writers explained that as long as excess reserves exist, rate hikes will make it more profitable for banks to lend those excess reserves. This expands the money supply and creates inflation.

They go on to say that what this means for the economy and financial markets is the Fed is highly unlikely to become a drag on growth anytime in the near future. And since the number one cause of a recession is an excessively tight Fed, they think investors should watch this process
carefully, but not be alarmed by it.

It is my hope that the Fed does reduce its balance sheet, but with less rate hikes. But what disturbs me most is what is going on in Washington. There seems to be a level of hatred between both parties this country has never seen before. And the sad part is it seems there is no one on planet Earth that can or is willing to do anything about it.

But getting back to my main argument. Why is the Chairwoman sharing her thoughts with the Wall Street Journal between meetings? In their story they used the word LEAK. How appropriate was it to yesterday’s story? Enough is enough. It’s time to do something about it.

Our country has so many issues to battle and I cringe to think where this country is headed. With all the debt this country is facing we should not be cheering how many new millionaires the Trump rally has created, but bring up the less fortunate to a level where they become part of the solution and not part of the problem.

I believe all this madness will produce a major rally in the price of gold. I just think it will take some time. Whether the rally will be created from across the pond with the breakup of the EU or uncontrollable debt this country will face with the cost of healthcare, entitlements and infrastructure. It looks to me it’s a year or two away but I believe it’s coming.

The question is when will you join the club and get started cost averaging your investment with physical gold and silver? A smart investor should have a balanced portfolio and what better product to hold in their portfolio as a hard asset is an investment in physical metals? The clock is ticking!

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.