Dollar Strength and Increased Risk Appetite Weigh Heavily on Gold

Gold gave back the gains achieved earlier this week with Comex futures losing $10.80 (0.84%) on the day with the most active June contract closing at $1286.90. Dollar strength certainly contributed to today’s decline with the dollar index up .28% and fixed at 97.65. The remaining drawdown of .56% is directly attributable to selling pressure.

According to the KGX (Kitco Gold Index) spot gold lost $9.90 today and is currently fixed at $1286.20. Selling pressure accounted for -$6.30, and dollar strength added
the final -$3.30.

The selling pressure was a reflection of an increased risk appetite as U.S. equities scored solid gains for the last three consecutive days. Today the Dow Jones industrial average gained 0.84%, or 214.66 points. However, it was the NASDAQ composite which had the largest percentage gain today of 0.98%. This took the tech heavy index to 7898.60 after factoring in today’s 76.45-point gain.

According to Reuters, “Wall Street extended its rally in afternoon trading on Thursday as upbeat earnings and strong economic data put investors in a buying mood, with technology companies leading the charge. All three major U.S. stock indexes were up about 1%, bringing the bellwether S&P 500 to within 2% of an all-time high reached on April 30 … On the economic front, groundbreaking on new U.S. homes increased more than expected in April, according to the Commerce Department, as declining interest rates provided support to the struggling housing sector … In a separate report from the Labor Department, the number of Americans applying for unemployment fell more than expected last week.”

Technically today’s decline resulted in a 50% retracement of the most recent rally which effectively began on May 2^nd when gold hit a double bottom at $1267 per ounce. After Monday’s tremendous upside spike which took gold pricing to just above $1300, Tuesday and today took gold pricing lower and is currently fixed just below a major Fibonacci retracement level of .38% (1287.30). If gold continues to decline the next major support level occurs at $1267, however if gold trades back above resistance at $1287 it could easily make a second play at closing above $1300 per ounce.

Wishing you, as always, good trading,