Stronger Dollar On UK Election Lowers Gold June 9, 2017 A stronger dollar is seen this morning after the surprise result in the UK election yesterday. As the results were tallied, the Pound Sterling took a dramatic drop in value and even the Euro was under pressure as the currency world turned to the US Dollar for stability. Subsequently, the price of gold continues to lose ground, even though just a few days ago it looked like the $1,300 dollar level was within reach. The UK election UK Prime Minister Theresa May’s plan for a snap election to gain a stronger majority in Parliament backfired miserably. Her hope was the snap election would give her majority more seats in Parliament with a good chance of obtaining a smoother Brexit from the EU. The result was just the opposite. The outcome is that now no party will have a majority, making it a good possibility that the Brexit negotiations will not start on time. Big blow for the conservatives and a bigger blow to the Prime Minister as some are calling for her to resign. Over the pond economics Yesterday, the Euro lost ground against the dollar after European Central Bank President Mario Draghi announced a downward revision to his inflation predictions. Gold traded lower off the news as the dollar strengthened. Mario Draghi said the Central Bank new inflation target is 1.5 percent down from the 2 percent level previously reported. There was no change to the ECB benchmark interest rate currently at zero percent. The language in his statement indicated that a future rate hike is not in the cards at this time. This was the fifth quarter in succession that the ECB had no change to the benchmark interest rate. The European economy shows that their GDP grew at 0.6 percent in the first quarter with the UK the worst performer at 0.2 percent followed by France and Italy at 0.4 percent and Germany at 0.6 percent. Back to our Markets I’d be remiss if I neglected to talk about the Palladium market this morning. As I start my preliminary investigation to what is causing this market to react in this unusual manner, here is what I’ve been told so far. First of all you must be aware that currently the Palladium market is in a backwardation. What that means is that spot price of Palladium is higher than the most active month in CME futures. Depending on whom you talk to, it’s anywhere from minus 40 dollars to minus 20 dollars. The scary issue that the market has to decipher is, in a market that’s trading in a backwardation, the relationship from spot to the most active futures market is unlimited until physical product comes into the market. I remember many years ago the backwardation in spot Platinum when it traded out as far as $150 over the most active futures month. What I’m hearing is that there is significant shortage of ingot in Zurich and London that is causing this market to react this way. What seems to be causing the shortage is that shipments of ingot from Russia are being diverted to the Far East. I have not heard why this is happening and time is running out for me to get this comment out, so today I will be talking to folks familiar with these exports from Russia and will try to clarify what the true story is with you in my next comment. Last I’ve seen is, many of the major electronic platform providers are not quoting spot Palladium at this time. And the one or two that are, are showing spreads in spot Palladium no smaller than $17 DOLLARS WIDE for very small quantities. Like any market in a backwardation, as soon as supply returns to the market the backwardation will collapse and return to normal levels. In the time being, if you hold Palladium ingot you are the king and should play your hand accordingly. In the meantime, if you need to trade this metal, proceed with extreme caution, because as I said in the beginning, the tighter the supply gets the wider the back and it will only take a story or someone with product to release into the market for the whole landscape to change. Have a wonderful Friday and to all heading to the IPMI conference in Orlando Florida this weekend, safe travels. 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. 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