Even Dollar Weakness Does Not Support Gold

U.S dollar weakness has not helped gold close in the positive today. Traders took the dollar index lower today, resulting in a net decline of just over a quarter percent. The dollar is currently fixed at 94.24, which is a decline of 25 points on the day.

The net result of dollar weakness was an additional $2.85 of value per ounce of physical gold, as reported by the Kitco Gold Index (KGX). However, traders bid the precious yellow metal lower by $3.65, resulting in a decline today of $0.80. Spot gold is currently fixed at $1,240.40.

While on a technical basis it does appear that the dollar faced some real resistance at just above 95. This recent decline has not been enough to overcome the selling pressure that traders have witnessed in gold.

It seems for whatever reason even with the potential for an all-out trade war between the United States and China, the safe haven aspect of gold is an asset has been absent from market sentiment. We have seen the precious metals reacting in unison with other commodities, with declining values over the last couple of weeks.

Market sentiment continues to expect a more hawkish Federal Reserve in respect to interest rate hikes this year. Traders are working under the assumption that there will be a total of four rate hikes in 2018, rather than three which was the original forecast by the Federal Reserve on their “dot plot.”

In essence, the Feds have continued their monetary policy of quantitative normalization with all of the components. The two major tools in their arsenal that they have used has been balance sheet reduction and rate hikes, which continue on an ongoing basis as they have throughout the year.

On a technical basis, gold is currently at the lows seen in December of last year. That coupled with the “death cross,” a condition where the short-term 50-day moving average crosses below the longer-term 200 day moving average, collectively have continued to be interpreted as bearish market sentiment.

However, gold did close above the critical support level of $1,238 in trading today. Gold futures are currently down $0.20 and basis the December Comex contract is fixed at $1,241.

With the recent resistance seen in the dollar index at 95, and the fact that gold futures managed to close just above the lows achieved on Friday could be signaling a point in time in which we would see a key reversal for both gold and the dollar. However, we would need to see a major uptick in gold pricing along with continued dollar weakness to confirm that possibility.

Wishing you as always, good trading,