Gold breaks below $1300

Although gold is trading under pressure today after breaking below a critical support area of $1300, it has recovered slightly from the intraday low which came in at $1292.50. As of 430 EDT, the most active gold futures contract (December 2017) is trading at $1296.90, a net loss of $7.70 (-0.58%) on the day.

Recently there has been a multitude of both positive and negative variables affecting precious metals pricing. As a whole, the financial markets have been deeply ingrained in a risk-on environment which favors equities in a time where interest rates are relatively low, and U.S. equities continue to trade to new record highs on an almost weekly basis.

At the same time, there have been geopolitical events as well as an extremely loose monetary policy by the Federal Reserve which have been supportive of gold prices.

First and foremost, it has been dollar strength or dollar weakness that has been one of the most significant underlying factors influencing precious metal’s prices. The fact of the matter is that gold is priced in U.S. dollars and therefore any move in the dollar will have a reciprocal and equal movement in gold pricing. As such, on any given day you will have gold prices reflecting both changes in U.S. dollar strength or weakness, as well as changes reflecting whether traders are buying or selling the precious yellow metal.

Today is such a day in which you have both dollar strength and selling resulting in the current pricing. Spot gold is currently trading off by $8.80 on the day and fixed at $1294.50. Of the $8.80 decline, a strengthening US dollar accounts for three dollars of the move, and the remaining $5.80 is directly attributable to sellers in the market, according to the Kitco Gold Index (KGX).

Last week’s trading activity was a strong win for gold, resulting in more than 2% of value in a single week. Uncertainty about the Federal Reserve’s plan and timetable to raise interest rates was a prominent feature supporting gold pricing. The fact that the most recent inflation numbers from the United States indicated that the inflation growth was tepid at best was a primary factor that market participants regarded as an indication of uncertainty about how quickly the Fed would raise rates.

However, speaking at the G-30 conference on Sunday, Federal Reserve Chairwoman Janet Yellen said, that the “ongoing strength of the economy will warrant gradual increases” in short-term interest rates.” Regarding the Federal funds rate, she commented that they “are likely to be appropriate over the next few years to sustain the economic expansion.” 

Wishing you as always, good trading,