U.S. Dollar Continues to Be Largest Contributor to Gold Pricing

Gold is trading under pressure today, currently trading off by $7.80 and fixed at $1,310. As of 4:51 PM Eastern standard time, gold prices have given up all of yesterday’s gains and closed at below yesterday’s open.

However, yesterday’s gains, as well as today’s selloff, have been a direct result of dollar strength and dollar weakness.

Monday's moderate gains resulted in a $2.80 advance in spot gold which closed at $1,316.40. Dollar weakness accounted for a net increase of $4.20 on the day, with traders bidding down gold prices by $1.40.

Today spot gold is currently fixed at $1,310.40, which is a net decline of $6.20 on the day. Although traders bid gold pricing higher which resulted in a dollar gain, a strong U.S. dollar resulted in $7.20 worth of selling pressure to take gold prices lower on the day.

In other words, over the last two trading days, it was once again all about the dollar as the primary contributor to current gold prices.

The overwhelming recent contributor to daily swings in the precious metals have been almost entirely dollar strength or weakness based, with buying or selling pressure adding nominal price changes.

FOMC Meeting Begins Today

Today’s dollar strength is a direct result of an anticipated rate hike to be announced at the conclusion of this month’s FOMC meeting tomorrow afternoon. According to the CME’s FedWatch tool, the probability that the Federal Reserve will raise Fed funds rates by 25 basis point rate hike is currently at 94.4%, an increase of 1.4% from yesterday.

While a rate hike tomorrow is highly anticipated and factored into current pricing, considerable uncertainty still remains as to whether the Federal Reserve will stay the course with their current ‘Dot Plot’ goal of a total of three rate hikes in 2018 or present a more hawkish tone to indicate four hikes this year.

As such, market participants have bid the U.S. dollar up, which is favored as interest rates move higher over a nonperforming asset such as gold.

According to Myra Saefong and Rachel Koning-Beals of MarketWatch, “Higher interest rates usually drive the dollar north and can reduce the appeal of nonyielding precious metals, but gold holders are also watching to make sure a rate-hiking Fed stays ahead of the curve in staving off inflation, against which gold typically acts as a hedge.”

Although many analysts believe that the Federal Reserve will stay the course and continue its current plan of three 25 basis point rate hikes this year, past experience tells us that nothing is etched in stone.

About the only certainty is that tomorrow’s conclusion of this month’s FOMC meeting will result in a knee-jerk reaction to any possible outcome, containing increased volatility and price movement.

Wishing you as always, good trading,