Two Competing Forces in Gold Mkt. February 9, 2018 Today we’ll look at the Past, Present and Future. First, we’ll tackle the present. Currently, there are two competing forces in the Gold market. There’s the investor who believes that in times of uncertainty gold still offers a safe haven for investors. Then there’s the speculator who takes on a short position and believes that the dollar will strengthen and interest rates will rise. These two different strategies are keeping the price of gold in its place. The question is which force will prevail Unfortunately, the answer will take some time to emerge. The U.S. Dollar and our Ten-Year Treasuries are up bit this morning, keeping the price of Gold in negative territory. The price of Silver is mirroring Gold as spreads keep their wide posture. In other words, there is plenty of Silver available. Platinum has become the orphan of the market with very little interest from investors at this time. Palladium has lost quite a bit of fanfare in the last month after reaching historic highs. The Palladium market is still trading in backwardation but without the Fund participation there really seems to be no spec interest around. Time to Look in the Rearview Mirror What were the two components that drove the stock market up to historic highs? Low interest rates and an anticipated corporate tax cut. There were issues with interest rates being so low for so long. The low interest rates fueled the stock market with investors looking for any type of yield that they were unable to get from the banks. Let’s face it, there was no other game in town, especially for those who were on fixed incomes. They really had no choice, they had to try to keep up with inflation even though it was at a low rate. The banks were paying peanuts on any money held on deposit. And then all the hype, and it was a spectacle to say the least, on how we can grow the economy at 4, 5 or even 6 percent with a corporate tax cut. And just to keep the average American in the game, the President said he would give that average American the largest tax cut in history. (I’m shaking my head) Volatilities were at historic lows and to say the markets had a tranquil bias would be an understatement. So what happens next. Last week the Atlanta Fed came out with a statement that they expect the first quarter annualized GDP for the first quarter would be 5.4 percent. That one statement hit the markets like a bomb. All of a sudden reality set in and at that point, if that did pan out, the Fed would have to be more aggressive in raising rates at a faster clip. Since then, the Atlanta Fed revised their prediction to 4 percent, but it was too late, the damage was already done. The dollar rallied after hitting a four year low, (Secretary Mnunchin didn’t help matters after doing a 180 on which way he wanted to see the dollar trade) Ten-Year Bond yields spiked and investors headed for the exits. A tremendous amount of volatility emerged in the directive markets, some nervous investors headed for the exits and now we will just have to wait and see what direction equities take. In my opinion, the reason we see such a volatile stock market is that the average investor is confused not knowing what the next six months will bring. Professional traders are trying to read the tea leaves, but there is so much uncertainty in Washington that it almost makes it an impossible task. Now with the bipartisan budget plan approved by both houses this morning, we will be looking at adding to the country’s debt at a rate of a BILLION dollars a day, for the next two years. Gold was also the recipient of bad news with the threat of higher interest rates and a stronger dollar. It seemed a large amount of the “cash out” equity trades were going in to treasuries. Gold sold off, but now has steadied a bit. So it looks like the markets will just have to wait to hear what the coming GDP numbers will reveal. In the meantime, volatility is now the new normal and one should expect this until we get a clear picture on the economy. In my mind one thing is certain, if the upcoming quarters of GDP come in below 3 percent the equity markets will take it on the chin and the price of Gold should benefit from a less aggressive Fed rate policy. In my opinion, if the economy doesn’t grow at the anticipated rate our government will have a big problem on their hands as the reduced income tax dollars will explode the country’s debt and then they will be at the end of their rope. Let’s not forget the corporate rate cuts are permanent and the individual tax cuts will be phased out in the years to come. I’m afraid to say there is no turning back now…… Have a wonderful Friday. Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. 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. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. 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