Dollar Giving Gold Back Its Luster

After the hubbub over the possibility of an announcement of an interest-rate increase in the previous two weeks, since the March FOMC meeting ended, gold has been the beneficiary of a diving dollar.

Couple the sinking dollar – really a dollar returning to sensible levels – with fresh worries about Greece and its status in the European Union, and we have some real momentum in upward gold pricing.

Probably more important is the underlying analysis by the Fed regarding the fundamentals of the U.S. economy.

"Last week, the Fed was more dovish than expected, the dollar fell versus the euro ... and the market is now hedging towards a September rate cut rather than June," Societe Generale analyst Robin Bhar said.

Hedging shmedging. The Fed would be out of its collective mind if it raised rates before September. And, we wouldn’t be surprised if the Fed raises rates only an eighth of a point when they do get around to raising the rate. It would be different from past approaches, but very possible.

Nevertheless, we need to take a closer look at investor sentiment. Traders have been reluctant to bid up the price on their own, allowing the softer dollar to do their work. In order to see some serious bullish impetus, traders and investors will have to start pushing on the yellow precious metal’s price themselves.

Another stumbling block to higher gold prices is renewed interest in U.S. equities.

Crude and gold worked in tandem today, the dollar helping West Texas Intermediate more than it did gold on a percentage basis. The U.S. 10-year face price rose, and, as would be expected with the declining dollar and Fed caution, the rate fell, staying under 2%.

Other fundamental headwinds gold faces? Declining holdings by ETFs, and soft physical demand in Asia.

Wishing you as always, good trading,