Dollar Weakness Continues to Support Gold Pricing

Considering that U.S. equities have had a strong upside move today, with the NASDAQ Composite closing at a new record high price at 8,013.33, gold futures are holding up rather well and currently trading up $3.60 at $1216.90. This is a nominal price gain; however when taking into account the incredibly strong risk-on market sentiment on the surface, it is impressive.

On closer inspection, we can see that it is not traders bidding up gold pricing today, but rather U.S. dollar weakness that is the net result of a positive move in gold.

As of 4:00 PM Eastern standard time, spot gold is currently trading up five dollars on the day and fixed at $1,210.30. According to the KGX (Kitco Gold Index), we can see that today’s gains are 100% due to dollar weakness, with a fractional negative addition of traders selling gold. $5.30 of today’s five-dollar move is directly attributable to dollar weakness, after subtracting $0.30 due to selling pressure in gold.

After Friday’s sizable upside spike, this certainly can seem as follow-through buying on the surface.  However, today’s uptick is directly attributable to a falling U.S. dollar, with today’s decline attributable to a trade deal with Mexico.

As reported in MarketWatch, “President Donald Trump on Monday announced his administration had reached a deal with Mexico on issues that have held up renegotiation of the North American Free Trade Agreement for over a year. At the White House, the president said the bilateral trade deal between the U.S. and Mexico should be called the ‘United States-Mexico Trade Agreement.’ He said he wanted to get rid of the name Nafta, which he said had bad connotations.”

Friday’s CFTC’s COT (Commitment of Traders) report showed an increase in net short positions by money managers. In fact, the total number of new increased short positions was over 9,000 lots. However, it must be noted that this report lags one week behind actual market action and Friday’s large upside spike could have easily caused short players to cover their positions.

Our technical studies indicate that gold futures are currently priced just below a major resistance level which occurs at $1,217.60. This price point reflects the 0.618% Fibonacci retracement. There are two key support levels to look at, first is the psychological support level that occurs at $1,200, followed by a major level of support at $1,178 per ounce which is based upon the 0.78% Fibonacci retracement. Both major levels of support and resistance are based upon a Fibonacci retracement from a data set which begins at $1,124, which occurred in December 2016, to the record high over the last two years which occurs at $1,368.

A break above $1,217 would move the current resistance price point to $1,246, continuing the uptick move which began in mid-August. If gold prices back off of recent gains, look at the support levels listed above as a guide.

Wishing you as always, good trading,