Gold Remains Steady in Light of Dollar Strength

December 11, 2018 - 5:59pm

 by Gary Wagner

Once again, we see the U.S. dollar dominating price action in the precious metals. With the exception of gold, metals including silver, platinum, and palladium all traded higher on the day. Palladium scored the highest gains by far and, even with the dollar strength, was able to close up $16.40 on the day for a 1.42% gain with futures fixed at $1,175.10.

Noteworthy is the fact that silver, platinum, and palladium were all able to overcome dollar strength today with all three precious metals trading with positive gains on the day. Gold was the only precious metal to close lower on the day. The most active February Comex futures contract is currently trading down $1.30 and is fixed at $1,248.10.

As of 4:40 PM Eastern standard time, spot gold is currently trading at $1,242.40. According to the KGX (Kitco Gold Index), today’s decline is more than 100% due to dollar strength. Market participants have bid the precious yellow metal higher by $1.80 today. However, after factoring in dollar strength which took away $3.20 of value per ounce, spot gold is currently down by $1.40.

Today, as well as yesterday, dollar strength is the result of weakness in the euro and British pound as Britain continues to struggle and delay any vote on Brexit. This, coupled with turmoil in France, has been supportive of the U.S. dollar as it trades against the Sterling and euro. The euro-dollar is currently trading off by 3/10 of a percent and fixed at 1.1322.

The dollar index is currently trading at 97.37, which is a gain of approximately 2/10 of a percent. Our technical studies indicate strong support for the dollar index at 96, with resistance at 97.75.

The dollar will certainly be center stage next week when on the 18th the Federal Reserve will hold its final FOMC meeting for the year. According to the CME’s FedWatch tool, there currently is a 76.6% probability that the Fed will raise rates next week. This is an increase from yesterday’s numbers which indicated that there was a 72.3% probability that the Fed would raise Fed funds rates on Thursday of next week.

According to our technical studies, we currently show strong support for gold at approximately $,1246. This is the 50% retracement of the data set which begins at the end of 2016 when gold was trading at $1,120 per ounce to the multiple highs at $1,370. We are defining resistance at two levels, the first of which is the 200-day moving average which is currently fixed at $1,259.60, and above that price point is major resistance at $1,275.80, which is the 0.38% Fibonacci retracement level.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
Maintain long February gold @ 1231 Maintain stop @ $1235.13
 
Last week we took profits on two trades. First when we rolled over the December gold contract we took a $600 profit, and second when we covered one of the two long February gold trad we tool a profit of $1460, for a total of $2060.00
Gold Market Forecast

Once again we see dollar strength providing real headwinds for the precious metals complex. Both the Sterling as well as the euro are trading lower against the dollar today. Upheaval and political unrest in France, along with a delay in Britain's vote for a Brexit, these two currencies continued to trade under pressure.

However it will be next week when the Federal Reserve meets for the final time this year that will set the final pace for dollar strength or weakness. Although it is highly probable that they will implement one last rate hike, I expect the tone and timbre of the Fed to be much more dovish in regards to interest rate hikes next year. In fact that would not be surprised if they announced that the current fed funds rate is either near or at neutral.