Gold Puts Together Small Gain in Face of Strong Dollar

October 21, 2016 - 5:57pm

 by Gary Wagner

In spite of the continued surge of the U.S. dollar, gold is eking out a gain today thanks to regular trading activity. The dollar dragged gold down by 0.35% and regular trading pushed it up about 0.55%. Silver was more or less in the same boat and both leading precious metals inched up marginally to end the week.

The dollar was up about half a percent against the euro; the two big currencies matter most when it comes to gold prices. Today’s jump in the dollar represents an eight-month high. The greenback was down against the yen but up compared to the British pound and Swiss franc.

Oil moved higher, mostly on comments by the Russian oil czar who seemed to lend support (again) to production controls. West Texas Intermediary closed up 1.00% on the week (at settlement today), or $50.85 per barrel.

But of course, there is a dark side to the moon. And we have been consistently discussing it. A carefully watched report from oil services firm Baker Hughes showed the number of active U.S. oil rigs rose by eleven this week. We marked the seventeenth week without a decline in the rig count.

The last time U.S. oil rigs rose by ten or more was two months ago, when there were fifteen add-ins during the week of August 15 and ten in the week of August 19. At the time, U.S. crude prices ranged between $44 and $48. So, we are roughly 10% higher from those big days of new or re-activated rigs.

Higher oil wasn’t enough for stock traders as earnings reports muddled the pictures and markets were on tenterhooks over what it believes will be an interest rate hike come December.

The Dow Jones industrial average is off about ten points in afternoon trade after momentarily dropping more than one hundred points. IBM and Johnson & Johnson contributed the most in losses, offsetting strong gains from Mickey D’s and Microsoft.

Up and down the line, U.S. bond yields stayed steady on Fed rate uncertainty. The 10-year yield remained below 1.74%.

And everywhere hovers the Longest Election In American History. Make no mistake, it does have an effect on markets. Those who don’t follow closely need to watch for a triple crown by the Democrats or a hint of one. If the race for Senate seats make it look as if the Dems will win that chamber, the next concern will be: can the Democrats win the House of Representatives, too? If that becomes a realistic possibility, you can view it as a headwind for equities. Our take is that investors won’t like one-party rule, although after all the divided government, who is to say?

How many days before the election is done? Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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Gold Forecast: Proper Action
Thursday (10-13) we sent out a trade alert recommending that our subscribers initiate a long position in gold.
 
Maintain your current long gold at 1259.60
 
Maintain your current protective stop below 1240.
Gold Market Forecast

In light of the extremely strong US dollar, gold managed to close moderately higher on the week.

This is no small feat considering that the US dollar has gained approximately 3% in value on the dollar index this month alone.

The US dollar is now under 1-1/2% shy of the elusive 100 on the dollar index, and we certainly could see the US dollar move back to that price point over the next couple of weeks.

That being said, and just as the proverbial salmon goes swimming upstream, gold has managed to find a level of support at around 1250 per ounce.

Silver, on the other hand, moved fractionally higher on the week, and does not seem to have the aggressive buyers in the market that are present in gold.

Trending Markets Forecast

There is no doubt crude oil has been moving to higher ground over the last couple of months. However, at the same time we have noted technical resistance at approximately $52 per barrel.

We have also seen crude oil prices trade in a defined and narrow trading range over the last two trading weeks between $49 and $52 per barrel.

Can member nations of OPEC continue to keep their production quotas in line with their commitments? The answer to that question will determine the future price of crude oil more so than current inventories.

Fractional gains and sideways trading activity have been the predominant characteristics of US equities over the last couple of trading weeks. As we get closer to the presidential election I believe traders are hesitant to bet big on any equities markets.

Lastly the US dollar continues to steamroll to higher pricing, moving past any minor level of resistance and now has 100 on the dollar index in clear sight.

Sentiment Indicator: