Dollar Strength and Risk-On Market Sentiment Continue to Pressure Gold Pricing
Goldfutures continue to trade under pressuretoday, with the most active December Comex contract currently down $7.60 andfixed at $1,215.60, a net decline of 0.62%.
As of 5:00 PM Eastern standard time, spot gold is currentlyfixed at $1,207.20, a net decline of $6.10 on the day. On closer inspection, we can see that the majority oftoday's lower pricing is a result of traders selling the precious yellow metal,which accounts for $4.15 of today's drawdown. The remaining drawdown of $1.95 can be directly attributableto dollar strength, according to the Kitco Gold Index (KGX).
The U.S. dollar index is currently trading at 95.19 and up 22 pointson the day, which is a net gain of almost one-quarterpercent.
The U.S.dollar continues to gain strength as tensions from potential trade warscontinue to ratchet up. There is a real possibility that the current tradedispute between China and the United States could morph into an all-out tradewar. The Chinese threatened to impose tariffs on Friday, which could be asmarginal as a 5% tariff to a 25% tariff on approximately $16 billion worth ofUS goods. This would be in addition to tariffs onU.S. goods which China has already implemented onthe United States.
Evenwith the real potential of a looming trade war, U.S. equities continue to holdtheir ground. This is creating a marketsentiment which continues to favor the equities asset class as a logical placefor investment capital. The risk-on market sentiment continues to drive U.S.equities higher, even in light of a potential trade war.
Assuch, a scenario of a strong U.S. dollar coupled with favorable marketsentiment towards equities has continued to pressure the precious metalscomplex as a whole as spot gold slowly closes in on the psychological supportlevel of $1,200 per ounce.
On a technicalbasis, gold futures traded and closed below a critical support level at $1,217per ounce. This technical level is based upon the 0.618% retracement which was created from the lows at $1,124 which camein at the end of December 2016 to the high achieved this year just shy of $1,370.If the $1,200 support level is breached the next logical level to find supportwould be $1,104 per ounce, which is the lowthat gold traded to within months of the 2016 election. Gold has resistance at approximately $1,245per ounce.
As long as the dollar remains firm and market sentiment favorsthe equities asset class we could see continued downside pressure in gold andsilver pricing.
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Wishing you as always, good trading,
By Gary WagnerContributing tokitco.com
Follow @garyswagner
gary@thegoldforecast.comwww.thegoldforecast.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.