Gold Trades Fractionally Higher, Attempting to Shake Off Friday Selloff

There is no doubt that gold traders and investors are still pondering the reasons for Friday's dramatic $25 decline. In fact, gold's pricing through the end of last week contained several interesting nuances that are typically not seen.

On Thursday of last week, gold futures rose approximately five dollars per ounce. However, the net change brought about by buying and selling minus dollar strength or weakness was about $20. It was extreme dollar strength that tapered any upside potential, which resulted in limiting gold's upside move to about a 1/4 of the price change before factoring in the U.S. dollar.

It was Friday’s move that took many traders and analysts by surprise with gold declining approximately 2% on the day. There are as many explanations for Friday's selloff is there are analysts. Some analysts simply noted that gold, along with the commodity complex as a whole, traded lower, concluding that gold was acting as a raw commodity rather than a safe-haven asset.

Other explanations cited dollar strength and eurodollar weakness resulting from last week's more hawkish tone by the Federal Reserve, as well as an announcement by the European central bank that they will soon end their quantitative easing monetary policy.

According to Peter Hug of Kitco News, "There was a delayed reaction until Friday, but metals traders having initially disregarded the 250 bip drop in the euro finally capitulated on gold. Gold's inability to break above $1,307, the 200-day moving average, also created technical pressure on the gold market. A move of this size in the euro suggests that maybe a light bulb went off in the multi-national corporate trading rooms. U.S. rates are moving up and ECB rates, at best, are on hold until year-end. I suspect that a number of corporates have not as of yet converted their offshore balances for repatriation home after the tax-law changes.”

Hug's explanation, which incorporates the possibility that multi-national corporations and their trading rooms played a large part in Friday selloff, illustrates the exceedingly large sell orders that hit exchanges prior to the weekend.

Gold is now attempting to find some footing, with gold futures currently up $2.40 at $1,280.90. It seems market participants are once again beginning to focus on current geopolitical tension created by the trade dispute between the United States and its trading partners, specifically China.

However, the more hawkish tone presented by the Federal Reserve last week, along with the ECB announcement, is undoubtedly limiting any upside potential created by the current trade dispute between the United States and China.

Wishing you as always, good trading,