Dollar Rally Subsides as Selling Pressure in Gold Increases

Gold gained value on Tuesday and Thursday (trading was closed in observance of the Fourth of July on Wednesday), the first occurrence of two consecutive up trading days, in which gold closed above its opening price and resulted in a moderate price increase, since June 14. At that time, gold was trading just above $1,300 per ounce, after staging a moderate rally which began on May 21 when gold was trading just above $1,280.

From June 14 gold prices traded dramatically under pressure to a low of $1,239 on July 3. Following the Fourth of July holiday, gold gained fractionally to close at $1,258.

Recent price pressure for gold has been mostly a direct result of a strengthening U.S. dollar. However, recent weakness in gold prices has been a combination of a strong U.S. dollar and selling pressure.

Over the last week, we have seen the dollar begin to trade lower after hitting resistance at 95 on the dollar index. The U.S. dollar continues to weaken losing almost a half percent in trading today closing at 93.735 on the dollar index. However, dollar strength today could not overcome selling pressure which resulted from today’s robust jobs report.

Gold futures lost $2.80 in trading today and is currently fixed at $1,256 per ounce, this basis the most active August Comex contract. Spot gold also traded lower on the day giving up $2.70 of value to be fixed at $1,254.60. According to the Kitco Gold Index, dollar weakness contributed a five dollar gain in terms of gold pricing. However, it was $7.70 of selling pressure that took gold prices lower.

Economic strength has led market sentiment to favor the risk on-asset class, resulting in higher equity prices. It has also underscored a high probability that the Federal Reserve’s current hawkish monetary policy and proposed two more rate hikes this year will remain in play.

The key to gold’s price direction over the next few weeks will continue to be based upon dollar strength or weakness. One of the most significant factors to the future direction of the dollar will be directly related to the trade dispute and whether it morphs into a full-blown trade war.

The current trade dispute between the United States and China seems to be widening with the real potential for elevating into a trade war which would have a profound impact on our current economic growth.

Wishing you as always, good trading,