U.S. Dollar, Geopolitical Uncertainty, and French Election Support Gold

April 18, 2017 - 5:48pm

 by Gary Wagner

Although certainly not equal players, a multitude of factors contributed to today’s price advance in gold. Continued uncertainty about North Korea’s nuclear proliferation, along with concern about the upcoming election in France, played a part in today’s action. However, it was U.S. dollar weakness that provided much of today’s upside move in gold.

Gold Prices Get Tailwind from Lower U.S. Dollar

As of 3:30 Eastern Standard Time, spot gold is currently trading up $7.60 at 1291.60, with a weak dollar continuing to provide a tailwind for gold prices. The U.S. dollar has lost value for the last five consecutive trading days. This lost value is no coincidence considering recent statements made by the U.S. president. In an interview with the Wall Street Journal six days ago, President Donald Trump stated, “the U.S. dollar was getting too strong and would eventually hurt the economy.”

While beginning as small incremental moves downward, today’s sell-off dwarfs’ recent activity. This culminates with the dollar index off by 8/10%, 79 points lower at 99.40.

On closer inspection, today’s $7.60 gain contained $3.05 of selling based upon regular trading. Per the Kitco Gold Index (KGX), the weak U.S. dollar contributed $10.65 of the value, giving gold a positive gain on the day.

Geopolitical Nervousness and the French Election

Today’s upside move in gold is based upon a weak U.S. dollar, with normal buying moving gold prices three dollars lower. Recent downside pressure has been curtailed given the current state of uncertainty and nervousness. Market participants continue to focus on rising tensions between the United States and North Korea. Rhetoric by North Korea, along with a U.S. Navy Armada steaming along towards the Korean peninsula, continue to underline the tenuous nature of the current geopolitical environment in Asia.

Traders and investors also have their eyes on the upcoming French election. According to Sarah Sjolin of MarketWatch, “Investors have learned one thing about politics over the past year: Don’t take anything for granted. Nowhere is that more apparent right now than in the French presidential race where a recent surge in support for socialist and Eurosceptic candidate Jean-Luc Mélenchon has added a layer of uncertainty to the country’s election. That is bringing “Frexit” fears back to the fore, rattling financial markets this week.”

The combination of dollar weakness, higher gold prices, and a continuing slide for U.S. equities only serves to ramp up the uncertainty factor further.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
Last Tuesday (April 11)  we sent out a trade alert:  Major breakout above resistance. June gold up 19 dollars at 1273. Buy gold at market (1273 current). Stop under 1260
Maintain long gold at 1273. Maintain Stop below 1260 ** (Current 1286.30)
** We will move stop up within the next 24 Hours
Gold Market Forecast

US dollar weakness continues to be an extremely powerful tailwind supporting gold prices. While there is no doubt that gold has traded to a five month high, we also see resistance at recent highs just below 1300. Therefore the real question is whether or not gold prices will retreat slightly and then breakthrough 1300, or if gold prices will be able to move above current resistance without any type of correction.

Trending Markets Forecast

Geopolitical nervousness continue to weigh heavily on US equities which have traded either sideways or under pressure for the better part of the last two weeks. Add to that a falling US dollar and significantly lower crude oil pricing. Today's trending markets will look at the US dollar and crude oil in detail.