23,000 Dow and Upcoming Federal Reserve Changes Weigh on Gold

Although many analysts have cited U.S. dollar strength as a partial bearish force on gold prices today, that is not the case. Rather it is the risk-on environment prevalent in the U.S. equities markets, as the Dow Jones broke through and closed above 23,000 today, along with uncertainty as to who will head the Federal Reserve next year when Chairwoman Janet Yellen’s term concludes.

Spot gold is currently trading off by $4.50 on the day. According to the Kitco Gold Index, gold prices have actually gained $1.15 based upon a weakening U.S. dollar. However, sellers have bid down the precious yellow metal by $5.65 with the net result of physical gold fixed at $1280.30, down $4.50 on the day.

Gold futures are also trading under pressure with the most active December’s contract currently fixed at $1282.60, down $3.60 (-0.28%) on the day.

The risk-on environment which has been so dominant in U.S. equities has most recently been based upon not only earnings, but optimism about an upcoming tax cut. This tax cut is being factored into current pricing. As such, it could create extreme volatility if President Trump, the House, and Senate are unable to agree on particular details and pass legislation to implement a tax cut.

Uncertainty as to who will head the Federal Reserve, and more importantly how hawkish or dovish the new Fed chair will be, has led to the risk-on environment.

According to investing.com, “As many as five people are in the running to be the next Fed chair, a source told Reuters on Tuesday. Rate hikes had not been fully priced in for next year. That has changed massively following speculation that (Fed Governor Jerome) Powell might become the next chairman," said Commerzbank analyst Carsten Fritsch.

Powell is expected to be the next Fed chairman, according to a slim majority of economists in a Reuters poll, though most of them said that incumbent Janet Yellen would be the best option. Dollar rose to a 1-1/2-week high before turning lower as traders digested more details on U.S. President Donald Trump's tax overhaul.”

Currently our technical studies indicate that there is minor support for gold at $1279 per ounce (basis Decembers futures contract), with major support right around $1260 per ounce. Upside resistance can be seen at 1300 with major resistance at 1309.

Wishing you as always, good trading,