Dollar Weakness, The Underlying Force Taking Gold Prices Higher

January 9, 2019 - 5:43pm

 by Gary Wagner

Gold futures moved back into rally mode today, and as of 4:30 PM Eastern standard time is currently trading up $7.50 per ounce, with the most active Comex February futures contract fixed at $1293.50.

Today’s higher prices are a reflection of market sentiment in reaction to the Fed minutes from last month’s meeting being released earlier today. The minutes revealed that last month’s meeting contained statements that brought to light a much more dovish sentiment among Fed members. More so, it highlighted strong differences between members in regards to future changes in the Fed’s monetary policy. These changes would affect the pace at which they would initiate rate hikes this year. A closer look at the minutes revealed that, “The FOMC judged that a relatively limited amount of additional tightening would likely be appropriate,”.

According to MarketWatch, “They argued that weak inflation readings allowed the central bank “some latitude to wait and see” how the data developed in light of the rise in financial market volatility and increased uncertainty over the global economic outlook, the minutes show.”

The minutes confirmed that the Fed has taken its foot off of the interest rate pedal, which resulted in the most aggressive set of rate hikes last year since the Fed initiated a monetary policy of quantitative normalization in 2015.

However, today’s price advance is not due to traders bidding the precious yellow metal higher, but rather dollar weakness.

It seems the one constant in gold pricing throughout last year that continues to this day is that dollar strength or weakness has been the strongest force affecting its movement.

Spot gold is currently fixed at $1292.30 after adding today’s gains of $7.60. Market participants actually added selling pressure today in the form of a $2.40 decline before factoring in U.S dollar weakness. Dollar weakness had the largest effect resulting in an increase of $10 per ounce, this according to the KGX (Kitco gold index).

It seems that dollar strength or weakness will continue to move pricing to a greater extent than buying or selling of the precious yellow metal as it did last year.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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Gold Forecast: Proper Action

We sent out a Trade Alert to raise your protective stop.

Maintain long Feb Gold @ 1268.50 

Maintain new stop @ 1278.13 

Gold Market Forecast

The key for our current trade is a potential rollover from the current long position which is in the February 2019 contract, to what will become the next most active contract month April 2019 (GC J19).

As attention begins to focus upon that outer contract month and the current active February contract is set to expire soon, we are presented with an opportunity if gold pricing continues to run to the upside. That opportunity is to take profits on our current trade and simultaneously enter a long position in gold in the April 2019 contract.

We will talk about the best ways to execute that trading strategy on Thursday and Friday of this week. Of course, we will send out a trade alert with the specifics of our recommendation when we initiate the next leg of this trade.

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