U.S. Equities Stage Dynamic Recovery Indicating Trade War Fears Are Subsiding

Selling pressure continues to move gold lower, with a stronger U.S. dollar adding slightly to the mix today. As of 4:00 PM Eastern standard time, spot gold is trading $3.80 lower on the day and currently priced at $318.80 per ounce. Of today’s moderate decline, the vast majority is a direct result of traders bidding down the precious yellow metal. This accounted for $3.30 of today’s $3.80 decline, with the remaining $0.50 due to slight dollar strength today.

The U.S. dollar index has been moving higher since February 16, when it traded to 88.16 on the dollar index. This was the lowest price for the U.S. dollar since November 2014. This rally in the dollar reached a high of 90.86 on March 1, at which time it began to trade lower. After losing ground for the last two trading days, the dollar index closed fractionally higher today, up +0.06% at 89.96.

It is the risk-on environment so prevalent in U.S. equities today that created the selling pressure we have seen in gold. The Dow Jones Industrial Average had a deep and decisive reversal this morning as it traded under pressure and down over one hundred points before staging an impressive recovery. This recovery would create over a 400-point trading range resulting in gains today of 336 points (+1.37 %), with the Dow currently fixed at 24,874 points.

It seems that, for the most part, the uncertainty of the United States entering a potential trade war further down the road subsided.

According to Bloomberg Markets, “The Dow Jones Industrial Average rose more than 300 points as mega caps that bore the brunt of the selling late last week led gains, while domestically-focused small caps lagged behind. The S&P 500 Index advanced for a second day after hedge fund billionaire Ray Dalio called the threat of a trade war “political show” and House Speaker Paul Ryan urged the president to reconsider tariffs on steel and aluminum. Trump, when asked about the congressman’s comment, said he won’t back down on trade.”

Last week’s events, which included testimony to both the House and Senate by the Federal Reserve’s Chairman Jerome Powell, and President Trump’s announcement on Thursday that he plans to implement tariffs on steel and aluminum, certainly influenced last week’s extreme market volatility.

Today the rising U.S. stock market and stable U.S. dollar indicated that investors and traders believe that the trade policies and tariffs proposed by the president last week may not transform into a trade war.

Wishing you as always, good trading,