Gold Futures Trading Fractionally Lower Despite Dollar Weakness

As of 4:00 PM EST gold futures basis the most active February contract lost $0.30, and is currently fixed at 1480.90. This fractional decline of -0.03% is lower in light of dollar weakness, with the dollar index currently down by -0.15% and fixed at 96.60.

After reaching a high of 98.50 at the end of November, the U.S. dollar index has lost almost 2% in value when weighed against a basket of six foreign currencies. The dollar reached a yearly high on two occasions this year, trading to 99.33 at the beginning of September, and forming a double top on October 1, when the index climbed to 99.30. The dollar traded to its lowest value since July on Friday when it traded to a low of 96.27 before recovering and closing off the lows and higher for that day..

Although gold futures are fractionally lower, the spot market is fractionally higher as it is currently up $0.70 and fixed at $1476.40. According to the KGX (Kitco gold index) gold gained $1.90 as a direct result of dollar weakness, but lost a $1.20 based on traders bidding the precious yellow metal lower.

However, based on recent political events, and a strong U.S. equities market, gold is holding up rather well. On Friday it was announced that the United States and China have come to an agreement on the phase-one negotiations. The Dow Jones industrial average gained value over the last four trading days. Today the Dow closed up 100.51 points at a new all-time record high of 83,235. 89. The Dow was not alone in making history as the Standard & Poor’s 500 and NASDAQ composite followed suite and both closed in record territory.

With U.S. equities higher today, and a partial resolution of the trade war reached on Friday, gold is absolutely resilient in that it had gained value on Friday and closed in essence unchanged today.

On a technical basis there is still strong support for gold futures at $1461, with major support at $1450, the 38.2% Fibonacci retracement. Resistance still remains just at the 50-day moving average which is currently at $1482.20. Gold futures traded to an intraday high of $1484.50 but closed $3.50 off the daily high when it settled at $1481. It also must be noted that on December 3^rd the 50-day moving average closed below the 100-day moving average forming a death cross. After forming a golden cross on June 25^th, the moving averages, (50 and 100-day) maintained a bullish demeanor up until December 3^rd.

Since these two averages crossed at the beginning of December the differential between them has been widening. That being said, these moving averages by definition our lagging indicators. Even if we are witnessing a key reversal from the most recent correction which occurred after gold hit this year’s high at $1565 per ounce, these averages will not indicate bullish momentum immediately. Lastly there is a tendency, historically speaking, for gold to rise at the conclusion of the calendar year. Over the last 13 years it has rallied at year end for the majority of those years. Will this holiday tradition continue or will headlines ‘trump’ the holidays?

Wishing you as always, good trading,