It seems like the financial markets at least for today are following, to some degree Newton’s third law of gravity which states that “for every action there is an equal and opposite reaction.” In the case of the financial markets if we remove the word equal, we come close to what we are observing today. As far as U.S. equities are concerned yesterday both the NASDAQ composite and the Standard & Poor’s 500 hit a new all-time record high. Then in trading today those indexes traded in the opposite direction closing lower today.
Yesterday gold traded to its lowest price point this year and then today reaction was opposite in comparison moving off of those lows and trading moderately higher. While yesterday’s actions in both equities and gold have had the opposite reaction today, gold’s higher pricing today was truly an uphill battle.
Gold prices gained in light of a tremendously stronger U.S. dollar. The dollar on a technical basis broke above resistance which we currently show at 97.767, Which is a .618% retracement covering over two years. The precious metal then settled up 0.45%, and is currently fixed at 97.75. Gold futures were able to overcome a strong dollar with the most active June futures contract closing at $1277.60 which is a net gain of $4.40 on the day.
Spot gold when viewed through the eyes of the KGX (Kitco Gold Index) details golds relative price change with and without the addition of the U.S. dollars influence. As of 4:16 PM Eastern standard time the time in which this was written spot gold was fixed at $1275.30. On closer inspection normal trading actually resulted in a $9.20 gain per troy ounce. However, once you factor in dollar strength which subtracts $6.10 of value, gold closed only $3.10 higher on the day.
On any given day gold prices can gain or lose value, but the real truth is that ever since the long-extended correction ended at the end of 2015 and traded off of the low created at $1040, the precious yellow metal has been trapped in a defined price range with extreme resistance at $1370 and support at $1160 per troy ounce.
In an article penned by Myra P. Saefong for MarketWatch she cited in analyst at Sevens Report Research which said, “With the dollar churning higher and rates holding the most-recent rebound (back to the pre-March Fed meeting levels), the bullish case for gold has weakened significantly. Near term, further declines can be expected as the [fourth quarter 2018] rally unwinds. But on a longer time frame, nothing has changed as gold has been pinned in a trading range between roughly $1,150 and $1,350 since 2016.”
The question becomes what changes must occur in the fundamental fabric that defines the global economy needs to change before we will see pricing break the current ceiling at $1370? Because based on current market forces we can expect gold to continue to trade within this defined $200 range.
Wishing you, as always, good trading,