Free-Falling U.S. Dollar Aids Golds Prices from Falling Further

The U.S. dollar sold off sharply today, specifically against the euro. Losing well over a full percentage point, the dollar index is currently trading at 96.06 (-1.09%). Dollar weakness occurred as a combination of bullish sentiment towards the euro, the postponement of a health care bill vote, and statements made by Federal Reserve Chairwoman Janet Yellen in London.

In an interview to MarketWatch, Alfonso Esparza, senior currency strategist at OANDA said, “The failure to pass the bill with enough support in the Senate suggests that the Trump administration is losing political capital that is needed to pass other policies, such as tax reform and infrastructure spending. Currency markets views this as a negative for the dollar.”

The most active August 2017 gold futures contract settled higher today and is currently trading up $2.50 at $1240.80. However, upon closer inspection, the dollar is actually trading under pressure today. This is based upon trading activity in the market without adding dollar weakness to the mix. According to the Kitco Gold Index, as of 415 EDT, spot gold is currently trading at $1248.10. This price is composed of normal trading resulting in a -$9.30 drawdown on the day and a weak U.S. dollar adding $12.90 to each ounce of gold.

It seems as though gold prices are still attempting to recover from Sunday’s (Monday overseas) dramatic downside move, which it seems was the result of a single trade. Whether the sale of 1.8 million ounces in a single order was a result of an erroneous order, or intentionally placed, the net result was the same. Thin trading volume, in combination with a huge market order, was too much for the market to absorb easily, spiking the market dramatically lower in a single minute.

According to Markos Kaminis, in an article he penned for Seeking Alpha, “The price of gold dropped significantly Monday on what some are speculating may have been a fat-finger mistake. In other words, a trader may have accidentally or purposefully made a market-moving trade the gold market was unable to absorb easily. However, gold is recovering significantly today, either on a rebalancing post a fat-finger error, or more likely, on the euro-lifting speech of Mario Draghi this morning and the war rhetoric coming out of the White House regarding Syria.”

The dust is beginning to settle as market participants digest the “Muppet Caper,” leading to sentiment being focused upon the U.S. dollar as well as a potential rekindling of conflict in Syria.

Wishing you as always, good trading,