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Flat U.S. Equities and Dollar Weakness are Supportive of Gold Prices

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Dollar weakness coupled with a risk-off market sentiment have been highly supportive of gold pricing today. Both the S&P 500 and the Nasdaq Composite closed in essence unchanged, while the Dow Jones industrial average closed lower, creating a risk-off market environment favoring the safe haven asset class. As of 3:30 PM Eastern standard time gold futures, basis the most active June contract is fixed at $1301.70, which is a net gain of $6.10 today.

The fact that gold has closed above a key psychological level, $1300 per ounce is significant. However, this is tapered by the fact that gold is trading well off the highs achieved in early morning trading in New York. Gold futures traded to a high of $1307.90 before retracing.

Currently dollar weakness is the most significant factor in terms of gold prices today. The dollar index is currently down by 36 points, a decline of -0.37%, and fixed at 96.645. At the same time gold futures are up by +0.47%. Which means at roughly 0.75% of today’s gains are directly attributable to a weaker U.S. dollar.

This can also be seen in spot gold, which is currently fixed at $1297.20, a net gain of $5.80 on the day. On closer inspection we can see that $4.40 of today’s gains are directly attributable to a weaker U.S. dollar, with the remaining gains of $1.40 a direct result of traders bidding the precious yellow metal higher. This according to the KGX (Kitco Gold Index).

According to MarketWatch, Stephen Innes, head of trading and market strategy at SPI Asset Management said, “China’s gold splurge has shorts running for cover today as latest data from the People’s Bank of China has seen the country add some serious weight to its gold reserves over the past few months. With China on the bid, it suggests buying on dips will be supported by a suspected China backstop as traders now think their appetite could extend through 2019 as global central banks continue to veer dovish which is adding more glitter to golds long term prospects.”

He cited recent Bloomberg data which said that the People’s Bank of China raised reserves to 60.62 million ounces in March from 60.26 million in February.

On a technical basis it is critical that gold futures maintain a price point above $1300 per ounce. The key levels of resistance above that price point are $1312, which is a Fibonacci retracement-based level, and $1324 which is the most recent high gold traded to before prices broke below $1300.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer