Gold Hovers Around $1,200

September 10, 2018 - 5:41pm

 by Gary Wagner

In lighter than usual holiday trading, gold futures are trading just above $1,200. As of 4:30 PM Eastern standard time, gold futures are up $0.30 and currently fixed at $1,200.70. Spot gold is currently fixed at $1,195.10, after accounting for a net decline of $1.10 today.

Even dollar weakness couldn’t overcome the selling pressure in the physical market. According to the KGX (Kitco Gold Index), selling pressure resulted in a price decline of $4.20 per ounce of gold, with dollar weakness partially compensating by adding $3.10 in value, which resulted in today’s decline of $1.10.

As reported by Reuters, “Gold has tumbled more than 12 percent from a high of $1,365.23 in April as trade disputes, weak emerging market currencies, and rising U.S. interest rates have driven a dollar rally.”

Considering that the dollar index was trading at 88 in April, the highs of August took the index to 96.85, which is almost a 9% increase in value. That means that gold’s decline of 12% was due mostly to dollar strength. However, there was a 3% component of pure selling that resulted in the 12% decline.

With the likelihood that the Federal Reserve will announce and implement an interest rate hike on September 27 at the end of this month’s FOMC meeting, traders and investors are beginning to focus on what comes after that. Currently, the CME’s FedWatch tool predicts a 99% probability of a rate hike this month, followed by a 60% probability that the Fed will implement another rate hike in December.

This action could continue to weigh heavily on gold prices as higher interest rates will certainly be supportive of the U.S. dollar. Last week’s jobs report is certainly supportive of a rate increase this month.

Lastly, real concerns continue to grow as the United States and China continue to be deeply immersed in a trade dispute that seems more and more like it will become a full-blown trade war. As long as there is a real possibility that the trade dispute will become a trade war, we could see the U.S. dollar strength continue and the Chinese yuan weaken.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer