Gold rose today despite active sellers, the result of a major drop in the dollar

As of 5:10 PM EDT, the most active December futures contract is up $5.70 (0.29%) and is fixed just below $2000 at 1999.20. But in the case of today’s rise in gold, the devil is in the details. All of the gains in gold over the last two days are directly tied to a major drop in the dollar index.

In fact, sellers were the predominant players in both gold futures and physical gold pricing today. However, the steep decline in the dollar index more than absorbed selling pressure moving gold moderately higher on the day.

The dollar fell to a six-week low today after declining 0.69% yesterday, and then an additional 1.05% today. The dollar index is currently fixed at 104.860, which is the lowest value since Wednesday, September 20. Major chart damage occurred as the dollar fell through its 50-day simple moving average which is fixed at 105.465.

The last time the dollar index fell below its 50-day simple moving average was in August, however, the dollar quickly recovered. The last sustained price decline in the dollar occurred on Friday, July 7. The dollar opened at 102.75 and closed at 101.98. More importantly, the break below the 50-day moving average took the dollar to 99.25. The last time the dollar index traded below 100 was in March 2022.

The chart above is a weekly candlestick chart of the dollar index. The red and green arrows indicate when the dollar index hit support or resistance at this particular price point. The number of instances in 2022 and 2023 where the dollar index found either support or resistance at around 105 is significant. Solidifying it as an important technical level.

The dollar fell to a six-week low after the release of the jobs report which revealed that the world’s largest economy added fewer jobs than expected. The weaker-than-expected report led to a decline in the yields of US Treasuries. Lower treasury yields were a driving force in today’s strong dollar decline.

It reinforces the assumption that the Federal Reserve is not likely to raise interest rates in December. Some analysts suggest that it could persuade the Federal Reserve to end its rate hikes completely while keeping the elevated interest rates intact.

Today’s drop in the dollar was significant and the factors which took the dollar lower could lead to further weakness. If the geopolitical tensions in both Israel and Ukraine at as the dollar continues to weaken it would be a combination of factors that could take gold significantly higher resulting in a new record high.

Wishing you as always good trading,