Strong Dollar Takes Gold Below Critical Support

The first day of the last quarter of 2017 began with the dollar surging to higher ground. As of 4 o’clock EDT, the dollar index is trading up 59 points (+0.64) at 93.475. Obviously, commodities traded or paired against the dollar had a reciprocal downside move.

Spot gold is currently fixed at $1271.40, losing $8.00 in value on the day. Of that, a dollar loss of only $0.45 is directly attributable to selling within the market. The remaining -$7.55 is directly attributable to a strengthening U.S. dollar, according to the Kitco Gold Index (KGX).

Gold futures are also trading strongly lower on the day, with most active December futures currently fixed at 1274.50, a net loss of $10.30 (-0.80).

Dollar strength today coincided with global and U.S. equities markets trading higher, with all three major indexes (Dow, S&P 500, NASDAQ composite) trading to new record highs in trading today.

According to MarketWatch, Fawad Razaqzada, technical analyst at Forex.com said, “The new week, month and quarter has started brightly for the U.S. dollar. In particular, the dollar gained against the British pound and the euro, with the euro undermined in part by the controversial independence referendum in Catalonia region of Spain at the weekend, while the pound has been hit by weaker-than-expected U.K. manufacturing PMI data.”

Another factor influencing a strong dollar today was an upside tick in U.S. Treasuries that have increased in value as traders see a higher probability of an interest rate hike by the Federal Reserve in December.

According to many analysts, the current geopolitical tension between the United States and Korea was widely ignored this weekend as the war of words continued. According to a technical analyst at Forex.com, “Meanwhile investors are continuing to ignore geopolitical risks, as their insatiable appetite for risk continues, as dollar-denominated and safe haven gold has consequently fallen out of favor.”

Today’s downside move has resulted in gold prices breaking below critical price support at $1280 per ounce.

Interestingly enough, this downside move coincides with a time when Russia has been accumulating gold. As reported in Bloomberg markets, data provided by the World Gold Council, “The Bank of Russia has more than doubled the pace of gold purchases bringing the share of bullion in its international reserves to the highest of Putin’s 17 years and power.”

Currently, Russia’s gold holdings account for 38% of all the gold purchased by central banks during the second quarter of this year.

Wishing you as always, good trading,