Once again it is dollar strength that is the primary force influencing current precious metals pricing. More importantly there are fundamental events that are quickly approaching that could greatly influence relative dollar strength or weakness and demand our attention.
On the minds of many analysts today is the current trade war between the United States and China, and the upcoming deadline of the first day of March. If no agreement is reached by that time the current tariffs that President Trump implemented last year will ratchet up from 10% to 25%. That most certainly would have a profound effect upon global economies as well as their respective currencies.
Therefore, for gold enthusiasts and traders it is all about the future direction of the dollar that will be the primary underlying cause for gold moving higher or lower. Although much emphasis is being placed upon the outcome of the current trade war negotiations between the United States and China, and the March 1st deadline, market participants should be focused upon the deadline of February 15th to fund the government.
If the political parties are unable to come to an agreement by Friday, we could see tremendous pressure taking the U.S. dollar lower and putting pressure on U.S. equities as well. This would create a one-two punch that would move gold pricing back into rally mode, and take gold prices higher.
The dollar has been in a defined an upward trend since the end of January 2019. After trading to a low of 94.88 on January 31st, 2019 the dollar index has climbed almost 2%. Today the dollar index is up approximately 45 points and currently trading at 96.865.
Recent dollar strength has had a profound impact on gold pricing. On January 31st, 2019 gold prices reached the highest trading point this year reaching a high of $1330 per ounce. As the dollar gained value, gold which is paired with the U.S. dollar began to move to lower pricing. As recently as last week gold traded to $1306 as the dollar gained value.
Today gold futures basis the most active April Comex contract is currently trading at $1311.90 which is a decline of .50%, which amounts to a loss of $6.70 per ounce. Considering that the dollar index is up today by .46% it is easy to discern that today’s decline in the precious yellow metal is primarily based upon the dollar.
When we look at spot gold which is currently fixed at $1308.30, we can see that the decline today is 100% a direct result of dollar strength. According to the Kitco gold index normal trading actually bid the precious metal higher by a fractional amount of $.70, however after factoring in a decline of $6.40, based upon a strong dollar, spot gold is trading off by $5.70.
Wishing you as always, good trading,