Dollar Strength and Risk-On Market Sentiment Continue to Pressure Gold Pricing

Gold futures continue to trade under pressure today, with the most active December Comex contract currently down $7.60 and fixed at $1,215.60, a net decline of 0.62%.

As of 5:00 PM Eastern standard time, spot gold is currently fixed at $1,207.20, a net decline of $6.10 on the day. On closer inspection, we can see that the majority of today’s lower pricing is a result of traders selling the precious yellow metal, which accounts for $4.15 of today’s drawdown. The remaining drawdown of $1.95 can be directly attributable to dollar strength, according to the Kitco Gold Index (KGX).

The U.S. dollar index is currently trading at 95.19 and up 22 points on the day, which is a net gain of almost one-quarter percent.

The U.S. dollar continues to gain strength as tensions from potential trade wars continue to ratchet up. There is a real possibility that the current trade dispute between China and the United States could morph into an all-out trade war. The Chinese threatened to impose tariffs on Friday, which could be as marginal as a 5% tariff to a 25% tariff on approximately $16 billion worth of US goods. This would be in addition to tariffs on U.S. goods which China has already implemented on the United States.

Even with the real potential of a looming trade war, U.S. equities continue to hold their ground. This is creating a market sentiment which continues to favor the equities asset class as a logical place for investment capital. The risk-on market sentiment continues to drive U.S. equities higher, even in light of a potential trade war.

As such, a scenario of a strong U.S. dollar coupled with favorable market sentiment towards equities has continued to pressure the precious metals complex as a whole as spot gold slowly closes in on the psychological support level of $1,200 per ounce.

On a technical basis, gold futures traded and closed below a critical support level at $1,217 per ounce. This technical level is based upon the 0.618% retracement which was created from the lows at $1,124 which came in at the end of December 2016 to the high achieved this year just shy of $1,370. If the $1,200 support level is breached the next logical level to find support would be $1,104 per ounce, which is the low that gold traded to within months of the 2016 election.  Gold has resistance at approximately $1,245 per ounce.

As long as the dollar remains firm and market sentiment favors the equities asset class we could see continued downside pressure in gold and silver pricing.

Wishing you as always, good trading,