$1300 Continues to be a Tough Nut To Crack

After trading to above $1300 (an intraday high of $1306), resulting in gold prices reaching a three-month high, a strong U.S. dollar today has caused the precious yellow metal to trade lower on the day. It seems $1300 an ounce is a tough price point for gold to trade and close above.

I am still of the belief that it is a matter of when, not if, when it comes to the question of whether gold prices will effectively breach the $1300 ceiling and close above it. Obviously, though, that will not occur in today’s trading session.

As of 3:30 EDT, spot gold is currently trading off $5.90 on the day. According to the Kitco Gold Index (KGX), today’s selloff is 100% due to dollar strength. Dollar strength today contributed a loss of $6.20 per ounce, while traders bid up the precious metal by a fractional $0.30 per ounce. If not for the strong U.S. dollar, gold prices would be unchanged on the day.

There are upcoming events which could very well be supportive of gold prices influencing price action throughout the next two weeks. First is the Federal Reserve’s annual economic symposium which will begin later this week. The second involves the joint military exercises which began yesterday in South Korea.

Recent activity bidding gold prices higher have been based on a couple of factors. A more dovish tone from the Federal Reserve and the European Central Bank have continued to put higher interest rates on a back burner. Both central banks continue to have an accommodative monetary policy that requires extremely low interest rates.

With both Janet Yellen and Mario Draghi expected to make statements at the Jackson Hole conference later this week, we could see more fireworks in store for gold prices.

Another factor which has been extremely supportive of safe haven assets, such as gold, is North Korea. Although recent posturing by North Korea seem to subside, as last week saw a de-escalation in threats made both in North Korea as well as by the United States.

According to the Associated Press (AP), “North Korea's military on Tuesday greeted the start of annual U.S.-South Korean military drills with its standard fiery threats, vowing "merciless retaliation" for exercises Pyongyang claims are an invasion rehearsal.”

The annual war games (Ulchi Freedom Guardian drills) in South Korea which began on Monday has resulted in strong threats being leveled by the North Koreans through their news agency. Today North Korea threatened to use “absolute Force” and turn the United States into a “huge heap of ashes.”

Since the current military exercises by South Korea and the United States will last a total of 11 days, it is quite likely that North Korea will ramp up its rhetoric and threats. What is not known is whether they will act with more than words, and make good on their vow for a “merciless retaliation” in response to these exercises.

Wishing you as always, good trading,