Gold Trades to the Lowest Price of the Year

Although gold closed modestly higher on the day, the precious yellow metal scored its second consecutive week of lower pricing. Gold futures opened on Monday at $1,281 per ounce and traded to a high of $1,286. However, it was the weekly low of $1,263 that fostered the most profound concern.

When considering that gold opened just above $1,300 per ounce at the beginning of the year, the last two weeks have resulted in gold trading to the lowest price of 2018.

The two critical factors which have placed the most considerable amount of selling pressure have been a strong U.S. dollar and the Federal Reserve's current monetary policy of quantitative normalization.

The highest price gold has traded to this year occurred during the week of April 9, when gold futures traded as high as $1,370 per ounce. At that time, the dollar index was trading at 89 after forming a base and support from the lows achieved at the end of January. This week the dollar index hit its highest value of the year when it traded to highs above 95. This represents a 6% gain this year.

While dollar strength explains the clear majority of gold’s lower pricing this year, gold has lost approximately 7.2% of value from the highs achieved in April. The additional 1.2% is obviously due to selling pressure.

This month’s FOMC meeting revealed a more hawkish Fed that created additional selling pressure. Although it was widely anticipated that the Fed would initiate its second-rate hike this year, they also announced a possible addition of two more rate hikes in 2018.

A Death Cross Forming on Daily Gold Charts

On a technical basis, one of the more foreboding indicators is an extremely high probability that the short-term 50-day moving average will cross below the longer-term 200-day moving average, which is commonly referred to as a death cross.

Most technical analysts use the 200-day moving average as a gauge of a long-term trend, and the 50-day moving average as a gauge of the short-term trend. Any stock or commodity which is trending higher will result in the shorter-term moving average rising above the longer-term moving average. Therefore, a death cross can signal when a short-term decline has moved into a longer-term decline or downtrend.

Looming Trade War

The current dispute between the United States and China has been moving towards an all-out trade war. It will be the net effect on the U.S. dollar, if and when tariffs begin to be enforced, that will indicate the future direction of gold. As of now, the current dispute and the recent announcement by the European Central Bank has strengthened the dollar.

As reported in MarketWatch, "Gold traders, however, have mostly dismissed those anxiety-provoking events that normally would be supportive of gold’s price to focus on a stronger buck and the prospect of central bank policy tightening taking hold in key developed markets.”

If tariffs are enforced in July as proposed, it could have a profound impact on dollar strength that would take the dollar index lower, which would move gold off of these recent lows. However the "Death Cross" if completed would indicate that the short term sell-off has become a Long Term trend.

Wishing you as always, good trading,