Dollar Strength Continues to Pressure Gold

Dollar strength and mild selling pressure combined were the primary contributors to today’s decline in gold pricing. Gold futures basis the most active August contract is currently down by $9.40, a net decline of just over ¾%, and fixed at $1,222.40. Today’s decline has taken all of yesterday’s gains and then some.

Although gold has traded lower than current pricing, on an intraday basis, this is the lowest closing price for gold since the decline began in mid-April of this year. Exactly one week ago today, gold prices traded to the lowest level this year, reaching a price point of $1,210.50 before recovering and closing at approximately $1,224 on that day.

It was President Trump’s statement and tweets that caused gold to recover from last Thursday’s selloff. The president spoke about his dissatisfaction with the current monetary policy of the Federal Reserve and the leadership of Jerome Powell.

In an interview with CNBC, the president criticized the Fed’s monetary policy and then in a tweet on the following day said, “The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates - Really?”

His statements made during the CNBC interview, coupled with tweets that came later, moved gold pricing from its low of $1,210 back to $1,231 by the close of trading on Friday of last week.

This week gold has been trading in a relatively narrow and defined trading range, with peaks at $1,235 per ounce, and lows at approximately $1,218. Gold pricing rallied yesterday, closing just above $1,231 per ounce. It then sold off today, closing at its lowest price point this year.

It is clear that dollar strength or weakness will be the most dominating factor in terms of gold’s current value. On a technical basis, the U.S. dollar index continues to find major resistance just above 95. Since mid-June, the dollar has challenged that resistance level five times and closed above that price point on one occasion.

As long as the dollar remains strong, it is highly unlikely that gold pricing will recover in any substantial manner. It is more likely that gold pricing will once again retest the lows of last week that came in around $1,210 per ounce. Our current target of $1,205 remains intact, matching the lows achieved in July of last year.

Wishing you as always, good trading,