Gold Struggles to Find Support as a Weaker Dollar Props the Precious Metal Up

August 7, 2018 - 6:20pm

 by Gary Wagner

Interesting but muted action has been present in gold prices recently. In fact, over the last six trading days, gold futures (basis the most active December Comex contract) have traded in a range containing a lower high than the high achieved on the previous day. However, since trading to an intraday low of $1,211 on the 19th day of July, the remainder of the month contains pricing above that price point.

At the same time, over the last three trading days, the daily range has contracted as indicated by the intraday low being higher than the previous day. This does, in fact, mark a point in time in which gold pricing is consolidating and trading within a defined and narrowly based range.

As for today, gold futures are trading fractionally higher and, as of 4:30 PM standard time, the most active December contract is trading off $0.80 and currently fixed at $1,218.50. 

Spot gold is faring much better, currently trading up by three dollars on the day and fixed at $1,210.10. However, on closer inspection, we can see that today’s three-dollar gain is due almost entirely to U.S. dollar weakness and not traders bidding the precious metal higher.

Only 10% of the three-dollar gain is directly attributable to traders bidding gold pricing higher, with the remaining 90%, or $2.70 in gains, directly attributable to dollar weakness, according to the Kitco Gold Index (KGX).

Currently, the U.S. dollar is down 1/5 of a percent (-0.187 points) and fixed at 95.000. Most importantly, gold pricing has been most influenced by dollar strength or weakness. It has been overwhelming dollar strength over the last three months that has been the major underlying influence taking gold prices lower.

On a technical basis, spot gold continues to trade below a previous critical support level which resides at $1,215. I believe this level has now become the resistance level for current pricing. Support resides at $1,200 and $1,205 per ounce, which is based upon the former lows. The low at $1,200 matches a previous low seen on March 9, 2017, and the low at $1,205 matches a low seen in gold in July of last year. Major support resides at $1,176 per ounce and is based upon a 0.78% retracement.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

Sent Yesterday: TRADE ALERT: Today we are issuing a Trade Alert For all traders not short to get Short !  Place stop above 1225 Basis December futures contract All traders should be short following my gold outlook email sent right after the FOMC statement was released, and Trade Alert sent...

See market forecast for outlook

Maintain short  December gold @ 1217

Maintain stop at 1227

Gold Market Forecast

This is an aggressive sell signal as on a technical basis we could see support at this level. That being said it has been a fundamentally driven market with dollar strength guiding the bearish outlook. That needs to change to see any real upside move in gold. Of course at any point we will see a upside bounce (dead cat bounce?) but any real change to our long term outlook requires the fundamentals at play to dramatically change.