Strong Equities and U.S. Dollar Once Again Pressure Gold

An extremely robust U.S. equities markets along with dollar strength put slight pressure on gold pricing today. The roller coaster ride that defines the U.S. equities market continues to oscillate strongly with significant gains today immediately following yesterday’s dynamic selloff.

Yesterday the Dow Jones Industrial Average traded within a range of over 900 points. Trading to a high which was a result of over a 300-point gain, and a low which resulted in a decline of approximately 500 points, the Dow closed approximately 245 points lower in trading on Monday. Today we saw the polar opposite in terms of outcome with the Dow closing up 431.72 points at 24,874.64.

The dollar has gained value for the last two days, with today’s gains of just over 4/10% taking the dollar index to 96.75. Today’s close matches the high achieved on August 15. The key difference is that the dollar index closed on the highs today, whereas the high achieved in August was only on an intraday basis.

A combination of these two factors, U.S. equity and dollar strength, has resulted in gold trading fractionally lower on the day. The most active December Comex contract is currently fixed at $1,225.10, which is a net decline of $2.50 (-0.20) on the day.

Market participants continue to shift their focus on concerns over a slowing economic growth which could easily result from increased trade tensions between the United States and China as the current dispute is quickly morphing into an out and out trade war.

As we mentioned yesterday, Bloomberg reported that the U.S. plans more China tariffs if the Trump-Xi meeting fails. According to the Bloomberg Report, “The U.S. is preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war, three people familiar with the matter said.”

According to this report, new tariffs would be imposed upon China amounting to an additional 257 billion worth of Chinese imports into the United States.

At an event in Indiana this Saturday, President Trump said, “We are in the middle of a pretty nasty dispute. We’re in a trade dispute -- I want to use that word because it’s a nice, soft word -- but we’re going to win. You know why? Cause we always win.”

It seems at this point that both sides of the dispute are playing an extremely dangerous game of chicken in which neither want to blink, as both sides get closer and closer to devastating the economies both in the West and the East.

While the continuation of a trade war has the real potential to put major pressure on U.S. equities pricing, just as it has done in China and their stock market, it has resulted in a positive and negative effect for gold pricing. The real possibility that U.S. equities will trade lower has caused investors to once again take a serious look at the safe haven aspect of gold, but at the same time, it has been highly supportive of the U.S. dollar which has been moving gold prices lower.

Wishing you as always, good trading,