Modest Buying and a Weaker Dollar Support Gold

Gold is trading modestly higher today, with the most active December’s futures contract currently trading up $3.20 and fixed at $1221.50. Today’s net gain is a direct result of fractional buying as well as a modestly lower U.S. dollar.

This can be best illustrated when looking at physical gold, which is currently fixed at $1213.20. Today’s net gain of $2.70 can be divided with almost equal parts of traders bidding up the precious yellow metal as well as a fractionally weaker U.S. dollar. Of the $2.70 gain, dollar weakness accounts for $1.10, with the remaining gain of $1.60 directly attributable to buying.

As recently as last week there has been a flight to quality and the safe-haven asset of choice has been the U.S. dollar. Since the end of May, the dollar has been flirting with 95 on the index and breaking above that price point on eight occasions including today’s trading activity.

However, today’s trading activity has resulted in a fractional drawdown to the index giving up -0.13% or 12 points to result in the index trading at 94.925. Although the index had traded above 95 for the last two days, it seems it has not found solid footing at current price levels. More importantly, this reflects the distinct possibility that this current level of the dollar index is an area of resistance rather than potential support.

Gold’s modest gains today are the highest closing price seen since Friday of last week. Moreover, for the first time in seven trading days, gold prices have contained an intraday high above the previous high. Gold traded to a high today of $1,223.80, roughly $0.70 above Tuesday’s highest trading price.

Up until today, gold had been trading with the descending highs and a flat bottom. Whether gold finds support in this area and moves higher or this recent activity is simply a rest area before returning to its downward trend, it is quite apparent that gold pricing is forming a base in this area.

The real question becomes: where will the dollar trade from here? Today statements made by a Federal Reserve official spoke about the need for gradual rate hikes. The Federal Reserve has made its intentions known in terms of its current monetary policy, which will include two more rate hikes this year as well as additional rate hikes in 2019.

If the Fed stays the course and initiates rate hikes based upon its current monetary policy than we could see further weakness in gold pricing coupled with dollar strength.

The wildcard remains the current trade dispute between the United States and China as tariffs begin to be initiated. The unknown effects of these actions will probably have a dramatic effect on the economic markets in the weeks and months ahead.

Wishing you as always, good trading,