Equities and Possible Rate Hike Weigh on Gold

A risk-on environment as well as a high probability that the Federal Reserve will implement one last interest rate hike this year have weighed heavily on the price of gold. As such, both of these factors appear to still be in play, with U.S. equities once again gaining value and closing at a new all-time record high.

At the same time, recent statements made by Janet Yellen at an economic conference a few weeks ago raised the probability that the Fed will implement one last rate hike in 2017.

The net result of a strong U.S. equities markets coupled with a high probability of another interest rate hike this year has resulted in a much stronger US dollar. The U.S. dollar reached a low for 2017 when the dollar index traded to 91 during the first week of September.

From the beginning of September until the present, the dollar index has gained roughly 3 ½%. It is the strong dollar that has been the primary nemesis of gold pricing in that there is an inverse and direct relationship between a rising dollar index and falling gold prices.

After achieving a runup in price of $162, resulting in a new high price for 2017, gold prices began to fall. Since the first week of September, gold prices have been retreating in a steady and methodical manner, giving back almost 61% of that gain.

The recent decline in gold pricing has resulted in a drawdown of $89 per ounce. That amounts to approximately a 6% decline in gold pricing over this last month. So while the U.S. dollar can be seen as accounting for a little over half of that decline, selling accounts for the remainder of this price decline.

Our current technical studies indicate strong support could be found at the 61.8% retracement of the recent rally that occurred before this current decline. As such, we are putting major support at $1265 per ounce. At the same time, we see multiple levels of resistance beginning at $1283. Above $1283, the next resistance level falls at $1302 to $1297.

Wishing you as always, good trading,