Dow, Dollar, and Doubters Take Gold Lower

Gold closed today under dramatic pressure, losing $15 on the day with gold futures settling at $1288 per ounce. A combination of a strong U.S. dollar and a risk-on environment, created as the Dow Jones Industrial Average flirted with 23,000, caused many traders to doubt the ability for gold prices to hold value.

As such, traders aggressively sold gold today which accounted for about two-thirds of today’s price decline. Spot (physical) gold is currently fixed at $1285.70, resulting in a $8.80 decline in pricing. According to the Kitco Gold Index (KGX), $5.40 of today’s decline is directly attributable to sellers in the market, with the remaining $3.40 as a direct result of a stronger U.S. dollar.

Additionally, the Dow Jones as well as the S&P 500 closed at new all-time record highs. The Dow hit an intraday high of 23,002, gaining 40.48 points on the day as it settled at 22,997.44. It is evident that the risk-on environment both in the United States and Europe is continuing and, in fact, building steam.

Gold has been under strong selling pressure for the last two days with yesterday’s break below $1300 per ounce continuing into today’s trading activity. Today industrial production and capacity utilization numbers came in strong, meeting expectations. The fact that there was no real decline in numbers in light of the two hurricanes that ravaged Florida and Texas recently made these numbers truly stand out.

Finally, there has been a de-escalation of the war of words and tensions between the United States and North Korea. However, it is this last point that I believe could easily be short-lived. This week the United States, along with South Korea, has begun a five-day naval drill off the Korean Peninsula. This comes as a direct response from recent threats by North Korea to fire missiles near the U.S. territory of Guam.

According to military.com, “Such military acts compel [North Korea] to take military counteraction," said Kim Kwang Hak, a researcher at the Institute for American Studies at the ministry. "We have already warned several times that we will take counteractions for self-defense, including a salvo of missiles into waters near the U.S. territory of Guam.”

Wishing you as always, good trading,