Gold is Under Pressure as The US Once Again are Back with a Strong Dollar Policy

In 2017 the Trump administration said that the US Dollar is “too strong” and that the weaker US Dollar would help to increase the export of the US goods. Secretary of the treasury Mnuchin also added that the stronger US Dollar would negatively impact the US Economy in the short term.

Speaking of the Secretary of the treasury, after Biden is officially a president of the United States, Jannet Yellen former Chair of the Federal Reserve, during her times of operating in the FED was always asserting the strength of the US Dollar and was claiming that a stronger US Dollar will drag the US Economy from further growth. Those were the words of a Fed chair, now as Yellen will be appointed as a Secretary of the treasury, her primary task would be to strengthen the US Dollar. The interest rates are at historic lows and the federal debt is larger than ever, if the US Dollar continues the downward trajectory the US won’t be able to pay for it’s debt.

The “strong-dollar” policy is the US policy that assumes that a strong exchange rate of the US Dollar will encourage investors to buy more US treasury bonds. While there are advantages of the stronger dollar such as it increases the import of goods from abroad, lower prices keep the inflation low, US investors can purchase larger amount of foreign stocks and bonds, US firms will have to compete with lower price products being imported and it would be harder to export domestic products as the price would be higher.

The US Dollar Index is back to the above-90 levels and is showing some strength after a drastic drop to 89.780, lowest since April 2018. The strength of the DXY might also be backed by developments in Europe and the UK, whereas France and other European states are closing their borders due to the newer more contagious mutated Covid-19 virus.

A strengthening US Dollar today hit the safe-haven asset which was growing significantly this month. Gold is down 0.35% in value today and according to the charts below it could either signal a bearish continuation or a correction before another impulse.

Gold 4H chart demonstrates that the precious metal was rejected by the dynamic resistance and an upper edge of the descending channel.

The impulse of November 30 looks very strong despite the rejection of the price by the dynamic resistance. There also is a formation of an important chart pattern on the watch on the 4H chart which confirms the uptrend of XAU / USD which at this point looks very accomplishable. By the time of writing this article, XAU / USD quote on Overbit is $1874.50 and is above an important static and dynamic support of $1860 demonstrated below.

As seen on the chart above, Gold remains bullish as it’s above the neckline of the favorable pattern for Gold buyers – the Inverted Head and Shoulders. The EMA50 is located on the same level, hence Gold might test the $1860 before another impulse towards the retest of the dynamic resistance at $1907 and $1961 if the dynamic resistance is penetrated. The further uptrend of Gold might be as well backed by the growing number of diseases in Europe and the UK as the new mutation is reported to be more contagious, this discovery is very unfavorable during the festive days.

However, if the price drops below the neckline and the $1860 support it may drop to $1817 and in that case it would be more unfavorable as forced by panic investors will start selling the precious metal and the XAU/USD might end up continuing a decline inside the downtrend channel. The new “strong-dollar” policy and developments in Europe will play a significant role in further price action of Gold, hence I highly recommend to follow the economic data published on the economic calendar.