Equities Move Like Quiet Thunder, as the Dollar Runs Out of Steam

Gold is trading under pressure today, with the most active June futures currently down $7.20, and fixed at $1,313.60. However, unlike many recent trading days, today’s lower pricing is not a direct result of a stronger U.S. dollar. Instead, the majority of today’s lower pricing is due to risk-on sentiment created from an extended rally in U.S. equities.

Spot gold closed $4.80 lower on the day and is currently fixed at $1,313.10. On closer inspection, it is traders selling gold that has resulted in a -$3.75 in pricing. The remaining -$1.05 is attributable to a strengthening U.S. dollar, according to the Kitco Gold Index (KGX).

Although U.S. dollar strength contributed roughly a quarter of today’s lower gold pricing, according to Bloomberg Markets, “The U.S. dollars resurgence is running on fumes.”

“A short squeeze that sparked the greenback’s fastest rise in 18 months has fizzled out, according to Wall Street strategists, who warn of mounting bearish conditions for the currency: paltry domestic inflation, economic resilience overseas and the potential escalation of trade tensions.”

Citing the fact that U.S. inflation failed to accelerate in April, Mark McCormick, North American head of foreign exchange strategy at Toronto-Dominion Bank, said, “The simple fact that it took three weeks to unwind a mix of positioning and valuation gaps that have been present since the start of the year underscores how sensitive the rally is to new (disappointing) information. A mix of decent global growth and contained U.S. real rates reinforce our expectations that the recent surge was nothing more than a positioning squeeze.”

Although the U.S. dollar gained fractional value today and trading closed at 92.50, this net gain of 0.10% is subdued when compared to daily gains exhibited since April 17.

Rather it is the risk-on market sentiment that is a result of U.S. equities closing higher now for the eighth session. In fact, although daily upside movement has been limited to smaller gains, the Dow Jones Industrial Average has maintained the momentum needed to book the longest winning streak in eight months, according to MarketWatch.

With the U.S. and China to re-enter trade negotiations this week, all eyes will be fixed upon any news that emerges from those talks. Depending on the outcome of these talks, and whether the two superpowers are able to come to some sort of an agreement, we could see a significant enhancement or diminishment of current precious metals pricing.

Wishing you as always, good trading,