Gold overcomes US Dollar Strength

The price of precious metals this week have been on an absolute roller coaster ride, with dynamic upside surges, and substantial price corrections. 

US dollar strength and weakness have been a prevalent factor throughout the week influencing the price of precious metals.

Today was no different, except for the fact that precious metals were able to overcome a half a percent rise in the dollar index, and still close higher on the day.

The rise in gold prices today was in essence a $15 plus rise, in which dollar strength took away roughly 6 dollars of value, resulting in a net gain of roughly $10

With US dollar strength in mind, let’s look ahead more carefully to next week.

The key to most of our questions is the relative strength of the U.S. dollar against the euro. That is most often predicated on what people perceive regarding the Fed’s next move or non-move. This coming week will be no different.

Already today, we see today that retail sales for April – despite some bad news from brick-and-mortar retailers – beat estimates. That should send the dollar higher into next week.

Of course, that will put down side pressure on gold and the rest of the precious metals complex lower.

However, If today was any indication, gold could be able to overcome that pressure.

It will also weigh on crude prices.

On the other hand, we can predict fairly confidently that the better retail numbers will inspire many to believe that the next Fed interest rate rise is just around the corner. We don’t think it is, but that won’t prevent the jittery among us from trading as if it were.

There are countervailing trends that make us say that.

The Labor Department released its producer price index. It climbed 0.2% last month after slipping 0.1% in March. In the 12 months to April, the PPI was unchanged after the March dip.

So, inflation will continue to be restrained – by the lingering effects of the dollar's surge and the oil price plunge. Oil is higher than it was, but it is still relatively cheap. The greenback gained 20% against the currencies of U.S. trading partners between June 2014 and December 2015. That rise has been somewhat moderated but will resume shortly (as it has very recently).

Wishing you as always, good trading,