Dollar Strength Accounts for Majority of Gold Weakness Today
As you know, on any given day the price change in gold is the result of the combination of dollar strength or weakness and bullish or bearish market sentiment bidding the precious yellow metal higher or lower. In today’s case the vast majority of gold’s decline can be directly attributed to dollar strength.
Solid economic data pertaining to U.S. retail sales gave a boost to the dollar against all major currencies. As of 4:15 PM EDT the dollar index is currently back above 97, at 97.035 which is a increase of.49 points or +0.51%. At the same time gold futures basis, the most active August contract is currently fixed at $1405.40, which is a net decline of eight dollars on the day or -0.57 %.
Since gold is paired against the dollar there is a direct negative correlation between these two assets. Therefore, we can see that selling pressure resulted in a decline of only -0.06%, a fraction of today’s moderate price decline.
Spot or physical gold traded $10.40 lower on the day and is currently fixed at $1403.20. According to the KGX (Kitco Gold Index) selling pressure was a little stronger in the spot market in the futures and accounted for $3.75 of today’s $10.40 decline. The remaining decline of $6.65 is directly attributable to a strengthening US dollar.
In fact, with the exception of silver the other three precious metals traded lower on the day in both the spot and futures markets. The largest decline today occurred in palladium which lost $41 per ounce in both the futures and spot market.
The shining star of the precious metals complex today was without question silver which has been bucking any negative pressure in the precious metals complex. Even with dollar strength silver futures gained over 1.3% on the day. Currently silver futures are fixed at $15.57 after factoring in today’s gains of $0.20 per ounce.
The same solid economic data which has been putting pressure on gold prices as a result of dollar strength has strengthened bullish market sentiment for the industrial component which is intrinsic in silver, and allowed this precious metal to not only overcome dollar strength but gain value.
Interim and long-term we are still extremely bullish on gold pricing and believe that prices could reach as high as $1500 over the next year.
Wishing you as always, good trading,
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Gold Forecast: Proper Action
We are currently flat with no active trades in gold or silver.
Today our stop was hit on our long gold trade. We entered a long position at $1416.30, and our stop was hit at $1409.13 for a loss of $7.17 per ounce. This resulted in a loss of $717 per Comex contract.
Gold Market Forecast
The key to today’s trading range in gold was definitively dollar strength. The selling pressure that was a direct result of traders bidding the precious metal lower was nominal or fractional in the futures markets. Long-term we are still extremely bullish on gold and looking forward to retest the recent highs of $1442 per ounce. However, as we approach the apex of the compression triangle, we identified it is possible that when it breaks it will break to the downside rather than the upside. That being said the most prudent move at this point is patience and a neutral position in gold until we see how it reacts at the apex of the triangle.