It’s All About the Dollar

It’s all about the dollar. Or is it? There are certainly additional outside factors which have put pressure on gold. However, it is the U.S. dollar which has accounted for the clear majority of precious metal weakness this week. 

Recent gains in gold pricing eroded throughout this trading week, as the U.S. dollar found footing and major price support. On Monday, the dollar traded to an intraday low of 98.80. What followed were three consecutive days of dollar strength taking the Dollar Index to 100.50. A strong U.S. dollar, gaining a little over 1.7% in the last three days, has put significant pressure on all commodities which are paired to the currency. 

Today, for example, gold closed approximately $9.10 lower in the cash market. Of that drawdown, the strong U.S. dollar accounted for $6.90, while selling accounted for the remaining $2.20. 
Yesterday gold closed one dollar higher, but on closer inspection, traders actually bid up gold by $4.10. However, after subtracting $3.10 due to dollar strength, most daily gains were greatly diminished. 
According to KGX (Kitco Gold Index), Tuesday of this week resulted in gold losing $2.80. In similar fashion, it was a strong dollar that diminished the three-dollar gain accomplished by buying, thus moving the net change into the negative column. 

Other Outside Factors Weigh Heavily on Gold
Coupled with dollar strength, market analysts are citing profit-taking as a factor currently weighing heavily on gold. This is a result of market participants taking advantage of the recent price gains, with gold trading at $1195 on March 10th to just above $1260 on Monday of this week.

Critical Support and Resistance Levels
On a technical basis, we have been looking at 1260 to 1265 as a critical level of potential resistance. This level is based upon this year’s high, which occurred on February 27th when gold prices reached 1265. This week’s lower pricing in gold has confirmed this price point as a major area of resistance. 

We currently have identified support in gold at 1237. This is the 38% retracement of the most recent rally, which began on March 10th with gold trading just under $1200 per ounce and concluded on Monday when gold flirted with the yearly high at 1261. 
Below that is a major level of support at 1230. This is a 23% retracement of the rally which occurred at the beginning of the year when gold was trading at 1140, culminating at 1265 on February 27th. 
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Wishing you as always, good trading,