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Gold declines today, but it’s all about dollar strength

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Gold futures traded to a new yearly high in London last night, when for a brief moment the most active August contract reached $1796.10. This is the highest value gold has attained since 2012.

But that was to be short-lived. Gold prices began to selloff sharply just prior to the open of New York markets. By the time trading reached New York gold futures had traded off of their highs and opened at $1784.40. Even the opening price of gold today in New York was to be short-lived. As of 4:15 PM EST gold futures are currently down by $10 and fixed at $1772 per ounce.

However, the real story today is dollar strength. The U.S. dollar index traded sharply higher today gaining 6/10 of a percent and is currently fixed at 97.185. Considering that gold futures are down by 0.56%, and the dollar index is up by 0.60% a simple calculation tells us that gold actually traded fractionally higher on the day, and all of the declines were 100% attributable to a strong U.S. dollar.

Spot or Forex gold lost approximately $6.20 in trading today and is currently fixed at $1761.30. On closer inspection when we look at the KGX (Kitco Gold Index) fractional buying actually bid gold prices $3.70 higher on the day, but dollar strength resulted in a decline of $9.90 per ounce resulting in today’s $6.20 decline.

While gold continues to benefit from its safe haven demand, at least for today the precious yellow metal was not able to overcome dollar strength. Considering that gold was trading just below $1460 in March, any sizable dip in the market is simply due to profit taking and not a change in the fundamentals which have moved gold pricing substantially higher over the last three months.

About the only financial market that was higher today was the U.S. dollar. U.S. equities sold off sharply today with the Dow Jones Industrial Average losing over 710 points
(-2.72%), and is currently fixed at 25,445.94 points. The S&P 500 lost 2.59%, while the NASDAQ composite gave up 2.2%.

Globally equities recently have been under pressure as a resurgence, or second wave, of the coronavirus pandemic emerged as countries around the world have witnessed an uptick in the number of individuals contracting the virus.

While I remain extremely bullish on gold interim and long-term, it is not illogical that after reaching the highest price since 2012 that investors and traders would take short-term profits. Our technical studies still indicate that gold will challenge $1800 per ounce by the end of the year, and that gold overall maintains a long-term bullish demeanor.

Wishing you as always good trading and good health,

Gary S. Wagner - Executive Producer