Moderate Gains in Gold and Dollar Weakness

May 10, 2018 - 7:06pm

 by Gary Wagner

A solid upside spike characterizes pricing in the precious metals complex as a whole today. Gold futures gained $8.50 (+0.65%) and as of 3:45 PM Eastern standard time is fixed at $1,321.50. 

The majority of today’s gains are directly attributable to a weakening U.S. dollar. The dollar index is currently down 38 points and fixed at 92.50. As dollar weakness relates to gold pricing, it accounts for roughly ¾ of today’s gains.

According to the Kitco Gold Index (KGX), spot gold is currently fixed at $1,320.90, gaining $8.70 in trading today. Traders bidding up gold prices today resulted in a gain of $2.10, with a weakening U.S. dollar accounting for the remaining $6.60.

The fact that only a quarter of today’s gains are directly attributable to buying clearly indicates a tepid safe-haven response to the Israeli-Syria military actions that have occurred over the last 24 hours.

Geopolitical tensions continue to diminish regarding North Korea with plans for President Trump to meet with the North Korean leader still firmly in play. Although the recent action by the United States to pull out of the Iran nuclear record still raises concerns, for the most part, we have not seen any major safe-haven reaction to that event.

In an interview with MarketWatch, Colin Cieszynski, chief market strategist at SIA Wealth Management Inc., said, “Political risk changes related to Iran and North Korea haven’t been able to do it yet, and the recent rally in the U.S. dollar has been unable to do so either. Likewise, the U.S. Treasury yield hasn’t been able to get away from 3.00% in either direction.”

The clear majority of today’s gains in precious metals can be attributed to diminished concern about rising inflation. Economic data released today indicated that the consumer price index rose only 0.2% in April, falling below economic expectations. The softer CPI data has lessened sentiment that the Federal Reserve will have a more aggressive stance in terms of rate hikes. A more dovish Fed could undoubtedly put pressure on the U.S. dollar, which would either result in the current dollar uptrend concluding, or at least slowing down substantially.

Inasmuch as recent weakness in gold pricing is directly attributable to a strengthening U.S. dollar, a softening or correction found within the currency would certainly be incredibly supportive of gold pricing.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
Wednesday, May 2,  we sent out a trade alert to buy June gold
Maintain long gold @ 1307 maintain stop @ 1298 *
* we will raise stop later this week, or early next week
Gold Market Forecast

The most exciting event today in terms of dollar weakness was the identification of a Bearish Harami Cross which confirmed today. Alone the Harami Cross is not that strong unless it is confirmed as it was the next day. We could have seen a short term top yesterday in the dollar index.