$320 Billion Budget Deal Yields Stronger Dollar, But for How Long
Gold futures have been trading lower ever since prices reached an apex last week when on Friday, July 12 the most active August contract traded to a high of $1454.40. Even during the trading session on Friday gold closed well off of that high and close at approximately $1428 per ounce. Yesterday gold traded in a narrow and defined trading range of approximately eight dollars and closed fractionally lower on the day.
Today U.S. dollar strength in tandem with mild selling pressure took gold pricing lower the precious yellow metal traded to an intraday low of $1414.60, and they recovered slightly. While dollar strength is attributed to yesterday’s budget deal, the new budget which allows the government to borrow could in fact take the US dollar as the costs of this growing deficit became more evident.
As of 4:45 PM EDT August futures are currently fixed at $1418.10 which is a net decline of $8.80 (0.62%). Today’s lower pricing is highly attributable to dollar strength. The U.S. dollar index gained approximately 0.50%, and is currently fixed at 97.42. Which means that only 0.12% of today’s 0.62% is attributable to direct selling pressure and bearish market sentiment. Nonetheless it is quite probable that after gold’s dynamic rally we are entering a period of consolidation and correction.
The same can be seen in physical or spot gold which is currently fixed at $1415.90. According to the (KGX Kitco Gold Index) today’s decline of $8.10 is composed primarily of dollar strength which accounts for $6.55 of today’s decline, with the remaining $1.55 directly attributable bearish market sentiment and selling pressure.
On a technical basis gold pricing could continue to trade lower. The key support levels to watch our $1400, a key psychological level. Major price support can be found at $1393 to $1384.50, a .38% retracement of this last rally. The major support level is based on a Fibonacci retracement from a data set beginning in June, when gold pricing was just around $1290 per ounce. The rally from June up until last week resulted in $162 gain in value. The 50% retracement is at $1366, and the .618% retracement is at $1349. Gold could trade as low as $1350 if it had a deep correction from last week’s prices. However, it is more likely that this retracement will not go below $1385.
Today’s dollar strength can be attributed to a budget agreement which was reached yesterday. This agreement will avoid another Washington shutdown and allow the government to borrow again.
According to MarketWatch, “President Donald Trump and congressional leaders announced Monday they had struck a critical debt and budget agreement. The deal amounts to an against-the-odds victory for Washington pragmatists seeking to avoid politically dangerous tumult over the possibility of a government shutdown or first-ever federal default.”
This agreement contains intrinsic risks in that the budget deficit is approaching the $1 trillion level which carries tremendous costs. It requires the government to borrow a quarter of every dollar spent. At some point these expenditures and increased debt will have the opposite effect on the US dollar and could take it dramatically lower.
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.
Yesterday we trailed our stop higher to $1415.13. That stop was hit today resulting in a loss of$13.37 per ounce, or $1337 per contract.
Gold Market Forecast
Market technicians are plagued by the fact that their decisions are based for the most part upon lagging indicators. As such we are not aware of a market top until a pivot or key reversal has taken place and the market trades Lower from that price point.
Such is the case in gold when on Friday pricing achieved the highest value this year. There would be a lag between the market top and when we could correctly identify that a correction had begun. It was evident on Monday that it was highly probable that or correction was in play.
On On today’s report we will focus on our targets for the conclusion of this fourth wave correction and beginning of a final fifth wave up when I believe gold will hit our target of $1480 per ounce.