For the first time since May, 2018 the dollar index has traded and closed above 98. However, during the last occurrence, the U.S. dollar had been in a free fall which began in December 2016, when the index peaked at 103.72, and 98.00 was just another brick in the wall of U.S. treasury supremacy. This major correction would result in the dollar losing over 15.5% of its value. By the time this correction concluded the index lost over 1500 points and bottomed at 88.10.
What is significant about this correction is what occurred after, a strong rally that in fact continues to this day. Beginning in January 2018 the dollar index began a slow and methodical move to higher pricing.
From the lows achieved in January 2018 to current value, the dollar index has gained 10%, and has gained back approximately .618% of the value lost during that steep correction. In fact for the last year price action above 97.70 has been met with substantial resistance, defining a major level of resistance at this price point.
As far as gold pricing is concerned, because it is paired with the U.S. dollar a strengthening dollar has a reciprocal and equally negative effect on gold pricing. That is to say that any gains experienced in gold beginning in January 2018 were done so with extreme headwinds from a strong US dollar.
On April of this year the dollar briefly traded above 97.70, closing above resistance and has been trading in this price range for well over a week. Needless to say, like the proverbial salmon swimming upstream gold pricing has been held back because of dollar strength.
Today is no different in that the dollar index is currently up by 0.22%, and gold futures are currently trading .20% higher on the day. This clearly illustrates that the fractional gains seen in gold today were actually twice as much, gaining .42% before factoring in dollar strength.
This can also be seen in spot gold which managed to scrape out a fractional gain on the day of $0.80. On closer inspection normal trading bid up the precious metal by $3.35. However, after subtracting $2.55 (the direct result of a higher dollar) the net change on spot gold was fractional at best, this according to the KGX (Kitco gold Index).
Global equity market jitters resulted in lower pricing around the world. As market participants rekindled their concerns that there has been Appearing more and more grim and uncertain every day. As long as the trade war influences market sentiment, we could see both the U.S. dollar and gold pricing moving in tandem to higher prices.
Wishing you as always, good trading,