U.S. Dollar Weakness Boosts Precious Metals Pricing

May 16, 2017 - 5:14pm

 by Gary Wagner

Now in its second week, a remarkable rally in gold and silver pricing continues. This rally began with bargain-hunting and short covering; however, this recent leg is predominantly based upon a weakening U.S. dollar.

There are multiple factors being cited as supportive of safe haven assets, such as gold. The sharing of sensitive information to Russian diplomats by President Trump is one event being cited. Other activities, such as this weekend’s missile test by North Korea, along with a global ransomware attack, have elevated geopolitical uncertainty and concerns. However, the Kitco Gold Index reveals that these concerns have not moved the needle much when it comes to precious metal pricing.

Today’s advance in gold pricing occurred even though traders bid gold prices lower on the day. Silver bucked the trend and was able to harness a weak U.S. dollar, in addition to modest buying, to gain 1.14% on the day.

Gold futures gained almost $8.00 (+0.63%) on the day, settling at $1237.80. As of 3:30 Eastern Standard Time, physical gold is trading at $1237.10. It was a weakening U.S. dollar which added $9.80 of value, while normal trading resulted in a net loss of $3.10 on the day. The combination of selling gold and a weak U.S. dollar amounted to a net change in gold today of $6.70.

U.S. dollar weakness accelerated today, with the dollar index giving up -0.79% in value, dropping to 98.01. This marks the fourth consecutive trading day in which the U.S. dollar closed lower. On a technical basis, the first signs of real weakness occurred on Friday, when the U.S. dollar closed just at its 200-day moving average, a critical benchmark used by market technicians.

Yesterday the dollar opened below its 200-day moving average and gave up roughly half a percent of value. Today’s decline of 4/5 of a percent took the dollar to a low that hasn’t been seen since the presidential elections last year.

On a technical basis, our current studies indicate that there is major technical support for the U.S. dollar at 97, a full percentage point away from current pricing. That being said, it is quite likely that we will continue to see U.S. dollar weakness, with gold and silver pricing gaining value.

Our technical studies also indicate the next level of resistance in gold at 1245, then again at 1257. Silver has minor resistance at $16.84, with major resistance at $17.18.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer