Gold Continues to be Pressured by Outside Forces

July 18, 2018 - 6:28pm

 by Gary Wagner

Although gold futures are trading slightly higher, today’s trading activity is highlighted by the fact that gold traded to a lower low and a lower high than yesterday. Currently, gold futures (August Comex contract) are trading at $1,227.80, which is a net gain of $0.50 on the day. It is the intraday low that is most noteworthy.

Traders took the precious yellow metal to $1,220.90, a new low for the year and a price point that traders have not seen since July 2017. Today’s selling pressure was once again dominated by dollar strength. In fact, it was earlier dollar strength which pressured gold pricing to this new low for 2018.

The U.S. dollar index once again tested the current resistance level which resides at 95, with the index trading to an intraday high of 95.18 before giving back those gains. Nonetheless, the dollar gained 15 points in trading today and is currently fixed at 94.855.

As of 4:15 PM Eastern standard time, physical gold is currently trading $0.30 higher on the day. This fractional increase is the net result of traders bidding gold pricing higher by $1.80, with dollar strength taking away $1.50, according to the Kitco gold index (KGX).

Dollar strength was not the only factor weighing heavily on precious metals pricing. There was also added pressure from the risk-on market sentiment created from today’s gains in U.S. equities, as well as the belief that interest is poised for more rate hikes, on a timetable of every three months.

Recent testimony by Jerome Powell laid out the current monetary policy for the Central Bank which is indicating a much more hawkish Federal Reserve in terms of the frequency of rate hikes. This is an indication that the fed plans to initiate two more interest rate hikes this year and will continue to raise interest rates every three months.

These rate hikes, if enacted as Powell suggested, will undoubtedly be a very positive factor for the U.S. dollar and almost guarantees that the dollar index will increase in value this year. As such, it will be challenging for gold pricing to advance and move to higher ground.

Even tepid economic data has not created any greater demand for gold. According to MarketWatch, “Gold prices showed little reaction in electronic trading Wednesday afternoon following the release of the Federal Reserve’s Beige Book. The snapshot of domestic economic activity found that the rapidly expanding U.S. economy is running out of room to grow any faster.”

According to Fawad Razaqzada, a technical analyst at Forex.com, “The current dispute between the U.S. and its trading partners in China, North America, and Europe has actually been a negative for gold because it means rising import costs may drive up inflationary pressures.”

Gold is, at best, fighting an uphill battle against a strong dollar and solid risk-on market sentiment.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

Yesterday I said "We are currently flat with no active trades; however, we now believe that it makes sense to initiate short positions in gold basis the October Comex contract. Aggressive traders should look to initiate short positions with a exit strategy and target of approximately 1200."

All traders should be short. Those taking the call yesterday are short August gold @ 1227.60 place your stop a 1240, or October gold @ 1232.60 place stop @ 1245

For those who did not place trade yesterday SELL gold at the market (Current August 1227, October 1231.60)

Gold Market Forecast

 Monday's price decline certainly resulted in substantial chart damage, with gold breaking below a critical level of support at 1238. That price point in most likelihood will now become resistance. That being said our new target should gold prices continued to decline, which is what we are assuming, is at approximately $1200 per ounce. That of course is based upon the lows achieved in July of last year.