Dollar Continues to Dominate Gold Price Changes

January 10, 2019 - 6:15pm

 by Gary Wagner

The daily range in gold continues to compress, after trading to an intraday high of $1300.40, and an intraday low of $1278 on Friday of last week, each trading day this week can be characterized as a compressing range defined by the intraday range from Friday, January 4.Today is no exception as traders were able to push the market to a high of $1298 and as low as $1286.70.

One predominant characteristic in recent price activity that we are witnessing lower highs, and higher lows, which is the definition of a compressing range. Today is no exception. As of 4:00 PM Eastern standard time spot gold is trading down by $7.40 on the day, and currently fixed at $1285.80. On closer inspection we can see that dollar strength resulted in a decline of $5.20, with the remaining decline of $2.20 directly attributable to selling pressure, this according to the KGX (Kitco Gold Index).

Given that day-to-day moves in the dollar index have been in oscillation between gains and losses, the overall trend in the dollar index has been to the downside. In fact, since December 11 of last year the dollar index has been slowly losing value.

After trading to a high above 97.00 the U.S dollar index has declined roughly 2% over the last month. Today it has moved higher, but its high was still below the opening price of the index yesterday. Yesterday’s price decline was below the opening price on Tuesday. Tuesday’s fractional gains came in below the opening price on Monday.

Although the dollar index has lost ground this week the most prominent characteristic is a defined oscillation between price gains followed by price dissents throughout the week. If this trend continues, we can expect the dollar index to trade lower on Friday. If this occurs, we would be left with a trading week that resulted in a total of three days with lower pricing separated by two days of price gains.

Fundamentally speaking recent dollar weakness has been a direct result of a dynamic change in market sentiment regarding interest rate hikes initiated by the Fed in terms of the frequency. Recent statements by Fed members have prompted this change in market sentiment and continues to this day.

According to Reuters the US Federal Reserve has come to the “end of the road” on interest rate hikes and should stop forecasting further rate hikes even as growth is expected to slow this year. This taken from a statement today issued by the president of the St. Louis Federal Reserve Bank, James Bullard. Bullard a voting member told reporters that he argued against the Federal Reserve’s December rate hike and stated that he was “worried the Fed is on the precipice of a policy mistake if it raises rates further”.

This week’s action strengthens the assumption that dollar strength or weakness will continue to move pricing to a greater extent than buying or selling of the precious yellow metal as it did last year.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
Maintain long Feb Gold @ 1268.50 
 
Maintain stop @ 1278.13 
Gold Market Forecast
As we said yesterday, the key for our current trade is a potential rollover from the current long position which is in the February 2019 contract, to what will become the next most active contract month April 2019 (GC J19).
 
We are presented with an opportunity if gold pricing continues to run to the upside. That opportunity is to take profits on our current trade and simultaneously enter a long position in gold in the April 2019 contract.
 
We are also presented with an opportunity if gold pricing corrects here. That opportunity is to take profits on our current trade and wait to enter a long position in gold in the April 2019 contract, after the correction concludes.
 
We will talk about the best ways to execute that trading strategy on Friday. Of course, we will send out a trade alert with the specifics of our recommendation when we initiate the next leg of this trade.