Gold Consolidates

Gold is consolidating following the most considerable one-day price advance since August 2016. On May 18, 2017, gold gained $21 to move from $1237 to $1258. Although very respectable, the resulting $21 gain still falls five dollars short of yesterday’s net increase of $26 per ounce.

In fact, you must look back at June 2016 to find a daily price increase that is equal or greater than yesterday’s gains. On June 24, 2016, gold prices gained $52 as the precious metal traded from $1196 per ounce and closed at $1248. Even more impressive was the trading range, which amounted to a $109 price differential from the low to the high of that day.

The trading range yesterday was $38 from the low to the high, roughly a third of the trading range that occurred on June 24, 2016. Historically speaking, yesterday’s price advance and trading range are both noteworthy and significant.

Even more impressive is the fact that today’s consolidation is shallow, with gold futures (April contract) currently trading at $1357, which is a net decline of one dollar on the day.

It Is Still All About a Weakening U.S. Dollar

A significant factor responsible for the strong tailwinds supporting gold prices has been the decline of the U.S. dollar. The dollar continues to trade under dramatic pressure and is once again at a critical price point. Currently, the dollar index is down by -0.60%
(-53 points) at 88.475. This is at the major and critical support level of 88.48, which on a technical basis is a line in the sand.

That price point is the 61.8% retracement of the data set from October 2013 when the dollar index was trading at 79, to the highs of January 2017 when the dollar traded just below 104.

A break below 88.48 on a closing basis could signal a freefall, taking the dollar as low as 84.50. That number represents the 78% retracement and another 4% decline in the dollar.

Spot gold, as of 3:45 PM Eastern standard time, is currently trading $3.80 higher and fixed at $1354.00. According to the Kitco Gold Index, today’s gains are over 100% attributable to a weakening U.S. dollar, which is adding $6.60 per ounce. However, traders selling gold today has resulted in a $2.40 decline.

As long as the dollar continues to decline in value, any selling pressure in gold will be muted and contained.

Wishing you as always, good trading,