Gold is Trading to a Different Drummer, But Cannot Overcome Dollar Strength

Gold is genuinely acting differently than other precious metals, as well as the commodity sector, although at first glance it's challenging to see. It is dollar strength that has been the predominant factor regulating and tapering any real upside moves in gold which continues to trade lower, now at its lowest price point this year.

As reported by MarketWatch, Lukman Otunuga, research analyst at FXTM said, "The driver behind gold’s depreciation remains an appreciating U.S. dollar. With the dollar likely to find ample support amongst the bullish sentiment towards the U.S. economy and heightened expectations of higher U.S. interest rates, gold could be poised for further punishment."

Spot gold is currently down $2.80 and fixed at $1,275.10. It is the only precious metal today in which regular trading has bid the price higher. While dollar strength is taking away $3.45 today, regular trading is actually bidding gold prices higher by $0.65. The net change from buying is nominal, but it is positive. In relation to the other precious metals in the sector, it is the only one exhibiting positive gains directly due to normal trading.

Spot silver, for example, is trading at $6.28, which is a net loss of $0.16 on the day. On closer inspection, we can see that four cents of today's decline (-0.27%) is directly attributable to dollar strength, with selling pressure adding another $0.12, resulting in the $0.16 decline for the day.

Whereas gold has gained +0.05% today due to normal trading, silver has lost -0.70%, platinum has lost -1.54%, and palladium has lost -1.87%. On the surface, gold's decline today of $2.80 does not clearly illustrate the safe-haven boost. However, when compared to the other three metals in the precious metals complex, which are all declining due to both dollar strength and normal trading, the safe-haven boost in gold becomes clear.

As the trade dispute between the United States and China thickens, with the potential to morph into a full-blown trade war, the commodity sector as a whole continues to trade under pressure, losing value from growing dollar strength as well as trading pressure. The base metals except for lead are all down over 1 ½% from selling pressure and lower still when dollar strength is added to the equation.

It is clear that gold is not reacting in the same way that the commodity complex is today. Instead, it is acting more like a currency and a safe-haven asset, at the same time so is the U.S. dollar. So, while it is logical to assume that we will continue to see gold prices gaining value in light of the current trade dispute, it is also logical that it will continue to be pressured by a strong U.S. dollar.

Wishing you as always, good trading,