Selling Pressure and Dollar Strength Continue to Weigh on Gold

July 10, 2018 - 6:10pm

 by Gary Wagner

After an unsuccessful attempt yesterday to break above the current resistance level, gold returns to trading under pressure. Today’s market activity resulted in gold futures declining by approximately $3.20, which is a quarter percent decline. Gold futures are currently fixed at $1,256.40.

Yesterday gold traded to an intraday high of just below $1,267 per ounce, which is the current resistance level. While gold has been able to maintain a price point above the critical support level at $1,238, it has failed to trade at or above $1,267. That number corresponds to the 0.78% resistance level created from the rally, which began in December of last year and concluded at the end of January.

It has been dollar strength or weakness which has been the underlying force moving gold pricing higher or lower. The recent price ascent, after reaching a low of $1,238 on July 3, was primarily based upon dollar weakness.

The U.S. dollar index traded to and just above the major resistance level at 95 before retracing slightly. Today the dollar is fractionally higher and trading at 93.87.

Our technical studies indicate a major support level in the dollar at 93.42, which corresponds to the intraday low the dollar traded to before reversing and finishing slightly higher on the day. Today the dollar had a dynamic move to the upside, trading to 94.22 before retreating to its current level.

Since gold has not been reacting as a typical safe-haven asset during the current trade dispute, pricing has been largely based upon market sentiment concerning the Federal Reserve’s monetary policy and the fact that they have become more hawkish than perceived before last month’s FOMC meeting. It is now widely anticipated that the Fed will implement a total of four rate hikes this year instead of three.

This more hawkish stance by the Federal Reserve has also been highly supportive of the U.S. dollar with an inverse correlation to gold pricing, which has been the most significant underlying factor to recent declines in gold.

Over the last two trading days, both the dollar and gold have had relatively wide trading ranges. However, both have closed relatively close to their opening prices. The fact of the matter is that after gold unsuccessfully challenged current resistance, today’s trading range resulted in a lower high and a lower low than the previous session.

This could be an indication that gold prices will once again test the major support level that exists at 1,238 which is the low that gold traded to in mid-December 2017.

Wishing you, as always, good trading,

Gary S. Wagner - Executive Producer