A Roller Coaster Ride for the U.S. Dollar and Gold

Traders and investors were taken on a roller coaster ride in terms of price swings in both the dollar and gold markets during today’s trading session. Gold had been trading higher for the better part of the morning session, posting gains as it still had momentum from the previous day's rally.

In fact, gold futures traded to a new yearly record high, taking prices to $1365.40 an ounce in early trading. However, that would all quickly change. Prices sharply reversed course after statements by Treasury Secretary Stephen Mnuchin and President Trump at the World Economic Forum annual meeting in Davos.

Treasury Secretary Stephen Mnuchin clarified statements he made on Wednesday when he said that a “weaker dollar is good for trade.” This statement obviously took traders and investors by surprise.

According to MarketWatch, “A U.S. Treasury secretary actively embracing a weaker dollar, even for the short term, appeared to come as a shock to traders. Investors have to go back more than 20 years to the early days of the Clinton administration to find a Treasury secretary seeming to endorse dollar weakness.”

Up until today, statements made by President Trump regarding the U.S. trade deficit contained the belief that the administration thinks that it can use a weaker dollar as a “cudgel to convince other countries to agree to new trade terms that are seen as more favorable to the U.S. It’s seen as hardly a coincidence the remarks come the same week Trump signed an executive order imposing tariffs on washing machines and solar panels, prompting concerns of a potential trade war with South Korea and China.”

However, the president's tone changed today when in an interview with CNBC he seemed to reverse that position when he stated, "The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar." During the interview, he also added that the Treasury Secretary statements had been misinterpreted.

These statements by the United States President and the Treasury Secretary today resulted in a strong reversal of the U.S. dollar and reciprocally gold. The U.S. dollar began to rally trading off of earlier lows, and gold pricing fell dramatically after trading to a new record high for the year.

Although gold prices have recovered from the lows seen after President Trump statements, as of 4:00 PM Eastern standard time gold futures are trading off $9.50 at $1346.80

Wishing you as always, good trading,