Is There a Straw That Broke the Camel’s Back?

June 15, 2018 - 6:45pm

 by Gary Wagner

Gold is trading under significant pressure today with August futures currently down $25.90 and fixed at $1,282.30. This sharp decline coincides with a major selloff of many commodities. Sharp declines in oil, grains, and other commodities defined trading activity in the futures markets today.

The sharply lower precious metals pricing contrasts with recent activity in which both gold and silver were moving in tandem with an extremely strong U.S. dollar.

The major event which occurred today was that President Donald Trump announced tariffs on $50 billion worth of Chinese imports. Chinese imports that contain “industrial significant technologies” will be charged a 25% tariff.

It has been widely regarded that the initiation of tariffs would raise the level of concern in terms of the geopolitical climate, which in turn would be bullish for the safe-haven asset gold. However, this is not what traders witnessed as the outcome today.

If today’s $25 drop in gold prices was not in reaction to the announcement by President Trump, then what was the cause to today’s selloff in gold?

One plausible explanation to today’s gold selloff is that it was a result of a combination of factors. We have just ended a week that began with four major events starting with the G7 meeting last week which resulted in discord between the United States and other member nations.

This was followed by the summit between the United States and North Korea, the conclusion of this month’s FOMC meeting, and an announcement by the European Central Bank that they will soon end their quantitative easing monetary policy.

The announcement by the European Central Bank caused a surge in U.S. dollar value specifically against the euro, while the other of events of this week resulted in a tepid reaction in terms of gold pricing.

The fact of the matter is that this week has been ripe with exceedingly essential events that will affect the fabric of the global economy for years to come. However, it was the announcement by the European Central Bank that could have been the final straw that broke the camel’s back.

Now for the first time since 2008, both the United States and the Eurozone are in the process of moving to a monetary policy of quantitative normalization. This significant policy shift could, in fact, be the most influential factor or the straw that caused the selloff in gold today.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

We are currently flat, with no active trades after our stop was hit today.

We went long August gold @ 1306.80 and our stop was hit @ $1285, resulting in a loss of  $21.80 ($2180 per cpmex contract).

Gold Market Forecast

The optimism of yesterday’s gain in gold pricing in light of a surge in US dollar value was short lived following the $26 loss in gold today. No doubt traders and analysts will spend the weekend looking at the cause and outcome variables. As we spoke about in the opening letter, it could have been a combination of the events from the last week, with the ECB announcement yesterday tipping the scales.