Falling Dollar Keeps Gold Sell-Off in Check

You might not know it by just looking at the net change of gold futures today, but it is dollar weakness that is keeping the current selloff in gold curtailed. Currently, the most active Comex contract (December) is trading up $3.60 on the day and fixed at $1211.90.

This modest rise is occurring in tandem with strong selling pressure on the U.S. dollar which has taken the index almost ¾ of a percent lower with a net decline of 0.669 points. As of 4:00 PM Eastern standard time, the dollar index is currently fixed at 93.445.

The Dow and S&P 500 closed at a new record high today (the first new all-time high in the Dow since January 26). This bullish market sentiment certainly favors the risk-on asset class.

Bullish sentiment in U.S equities certainly is in competition for investment dollars with the safe-haven asset class pressuring both gold and silver pricing. If not for dollar weakness today, we would’ve seen both gold and silver close moderately lower.

Spot gold is currently trading up approximately $3.20 on the day and is fixed at $1,206.90 per ounce. On closer inspection, normal trading today has resulted in moderately lower gold prices, leading to a decline of $5.10 per ounce. However, once you factor in dollar weakness and add $8.30 of value per ounce, gold closes positive in trading today.

Gold closed at its highest price point in three weeks as a result of today’s three-dollar gain.

According to Reuters, the Federal Reserve bought $1.1 billion in mortgage bonds during the week of September 13. At the same time, the Fed did not reduce its balance sheet of assets.

“’The Federal Reserve bought $1.133 billion of agency mortgage-backed securities in the week from Sep. 13 to Sep. 19, compared with $869 million purchased the previous week,’ the New York Federal Reserve Bank said on Thursday.”

Although the Fed is on record as having a monetary policy which is reducing its asset balance sheet which swelled to 4.5 trillion at the height of quantitative easing, along with small and consistent interest rate hikes, this move might be signaling a subtle change in Fed action. It will be interesting to see if the Federal Reserve statement released following next week’s FOMC meeting details additional mortgage-backed security purchases in the future.

Wishing you as always, good trading,