Dollar Strength Mutes Solid Bullish Risk-Off Market Sentiment

March 7, 2019 - 5:39pm

 by Gary Wagner

Although on the surface you would not realize that there was solid buying pressures exhibited in gold today. Although there is strong bullish market sentiment favoring the precious yellow metal, extreme dollar strength that is muted any real gains.

Spot gold is currently trading down by $1.20 today, which would lend one to believe that there was not a tremendous amount of bullish market sentiment however, on closer inspection it is dollar strength which is actually taking away $10.40 of value per ounce of gold. Buying accounted for a positive change of $9.20 but after factoring in the U.S. dollar spot gold is fixed at $1284.80, a fractional decline on the day. This according to the KGX (Kitco gold index).

The same can be seen in gold futures. Basis the most active April Comex contract, gold is currently trading down by two dollars, a net decline of 0.14%, and fixed at $1286. However, the dollar index is currently up by .85%, which is a net gain of 82 points on the day, and is fixed at 97.62. In other words, if the dollar’s net change on the day was neutral traders would have witnessed gold spike approximately eight dollars higher on the day.

Today’s remarkable upside spike in the dollar is in response to a forecast from the European central bank in which they lowered their forecast for growth in the euro zone, and announced their intent to hold off raising interest rates at least until later in the year. This news of course put tremendous selling pressure in the euro, which in turn had a positive effect on the U.S. dollar index. The U.S. dollar index is traded against a composite of six foreign currencies in which the euro dollar composes 57.6%.

Currently the euro dollar is off by 1.1%, a net decline of 0.01243%, which means that although gold traded fractionally lower in the United States, when paired against the euro gold shot up substantially due to a combination of buying and euro weakness.

The fact of the matter is that U.S. equities are trading lower on the day, and with eight minutes left in the trading day the Dow Jones industrial average is currently off by 254 points, and fixed at 25,419. This risk off market sentiment did translate into higher gold prices in terms of buyers bidding the precious yellow metal lower. However, it was not enough to overcome the extreme dollar strength witnessed in the market today.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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