Dollar Reversal Tempers Gold’s Gains Today

July 9, 2018 - 5:48pm

 by Gary Wagner

Gold futures gained $2.60 in trading today and is currently fixed at $1,258.40. Gold traded to the highest level in the last eight days when, on an intraday basis, it traded to $1,266.90.

Although the dollar finished in positive territory, it was dollar weakness that was the underlying factor taking gold prices to their intraday high. As in previous weeks, gold pricing continues to be most influenced by dollar strength or weakness.

Spot gold gained three dollars on the day, which was entirely due to traders bidding up the precious yellow metal. According to the Kitco Gold Index, regular trading moved gold $4.40 higher on the day, with a strengthening U.S. dollar taking away $1.40 of value, resulting in a $3.00 gain.

The highs achieved in gold today were a result of dollar strength which came as a reaction to a weaker euro-dollar as a direct result of the British pound trading dramatically lower due to concerns about Brexit uncertainty reemerged in market sentiment.

Another major obstacle holding gold prices back is the global risk-on environment which is so prevalent in equities worldwide. U.S. equities surged in trading today with the Dow Jones industrial average closing up over 320 points at 24,776.59. This makes the third consecutive trading day that has resulted in a higher Dow Jones industrial average.

Friday’s jobs report indicated that the U.S. economy is still robust and showing growth while, at the same time, maintaining tepid inflationary pressure.

One factor absent included any new developments regarding the trade dispute between the United States, China, Canada, and the European Union. It has been concerns about tariffs and the current trade dispute which have so significantly strengthened the U.S. dollar.

As reported in MarketWatch, “Global markets eased their focus on trade matters for now. Concerns about fraying relationships between the U.S. and its longstanding trade partners in the European Union, North American and China, have helped strengthen the dollar and have weighed on commodities priced in the monetary unit, including bullion. The dollar index has posted gains in each of the last three months, while gold futures fell in April, May, and June.”

As long as the dollar remains strong, advances in gold prices will be tempered. On a technical basis, it is noteworthy that the lows achieved last week, when gold traded to $1240 per ounce, held. It seems, at least for now, that these lows which match the lows of December and January have indicated a critical support level at that price point. Resistance currently resides at $1,267 per ounce. Until prices break above current resistance or below current support, we could see gold trade in a sideways and narrowly defined trading range.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer