It Is Not Just Dollar Weakness

Gold futures are trading under pressure today with the most active August contract currently trading down $6.40 and fixed at $1,224.70. This makes for a net decline of just over half of one percent today.

Although dollar strength certainly contributed to today’s decline, the dollar index is currently up by 17 points or 0.18%. This means that the majority of today’s decline is attributable to futures traders bidding the precious yellow metal lower.

This can also be seen in today’s spot gold pricing, which is currently fixed at $1,224.10, with a net decline of $7.40 on the day. Of that decline, dollar strength only accounts for $2.10 of today’s decline, with the remaining $5.30 directly attributable to selling pressure.

Gold prices declined sharply towards the end of last week following a presidential interview with CNBC. At that time, Trump complained about tightening Fed policy, which he reiterated later that day in a tweet. The president also stated that raising interest rates strengthened the dollar which he felt had an adverse effect on our economy.

The knee-jerk reaction which followed by traders was to take the U.S. dollar dramatically lower. Friday’s activity resulted in the U.S. dollar losing 0.80% on the day.

This weekend, the Treasury Secretary Stephen Mnuchin clarified the official position of the current administration. He underlined the fact that Trump does support the independence of the federal reserve, and that they currently are favoring a strong U.S. dollar.

As such, we saw a reversal to the trend that developed at the end of last week in which we had a stronger dollar and weaker gold prices today.

As reported by Peter Hug of Kitco News, “President Trump’s jab at the Fed for raising rates, which created a short covering rally last week, has faded from traders’ memories. Even his overt threat toward Iran failed to ignite investor interest. Instead, the jump higher in the 10-year bond benefitted flows back into the dollar and gold backed off Friday’s highs. Investors are losing patience and the weakness this morning has prompted renewed selling on the retail side.”

All things being equal, based on the current economic scenario, we would expect the U.S. dollar to continue to remain firm and gaining strength, and reciprocally gold prices to drift lower.

Our current target is based on last week’s low at $1,210 on the support side. Our technical studies also indicate that resistance resides at $1,238 per ounce.

Wishing you as always, good trading,