Gold Rises as the Dollar Index Falls Below 101, Geopolitical Tensions Remain Elevated

Dollar Weakness and Geopolitical Tensions Propel Gold to Near Record Highs

As of 4:20 PM EST, gold futures basis the most active February 2024 futures contract is currently up by $9.80, and fixed at $2089. That is just a few dollars below one of the highest closing prices of $2091 that occurred on Friday, December 1. Gold has been gaining a dramatic round after opening at approximately $2045 on Thursday, December 21, and gaining well over $40 in the last four trading days.

Today’s continued gains fall on the back of severe dollar weakness, the continuation of geopolitical unrest in Ukraine, the Middle East, and a new announcement by Russia and Iran, but more on that little bit.

The dollar index declined below 101 in trading today, taking the index to 100.952. This is the lowest value of the dollar index since the end of July. The dollar broke through a key support level at 101.17. This is based upon a 78% Fibonacci retracement of a data set in the dollar from the lows of mid-July at 99.50, to the highs above 107 that occurred during the first week of October.

Dollar weakness has been a prevalent feature in recent gains in both gold and silver. However, investors might witness the dollar falling to a much greater extent in the upcoming months as a result of a decision by Russia and Iran to trade between themselves in their local currencies instead of the US dollar.

Russia And Iran Finalize An Agreement To Trade In Their Local Currencies

Today, multiple news sources including Reuters News announced that Russia and Iran have finalized an agreement to not use the dollar and instead use their local currencies between themselves. This was announced by Iran’s state media on Wednesday. Russian and Iranian banks will now use infrastructure, including non-SWIFT Interbank systems, to complete their trade transactions. This financial trend began this year and is focused on a de-dollarization movement.

Multiple countries have been working to reduce the importance and use of the US dollar in international trade. These countries include Brazil, Malaysia, China, and India. It seems their endgame is to set up alternative trade channels that would not utilize what has been the worldwide reserve currency since World War II; the US dollar. For years the vast majority of worldwide international transactions have utilized the stability of what has been considered to be the favored reserve currency, the question becomes is the dollar losing its luster?

One of the strengths of US dollar domination allowing you to maintain the international reserve currency status it has obtained is the so-called “petrodollar”. For years, the majority of the world’s oil transactions have been settled using dollars. Billions of dollars per day have been utilized to facilitate these transactions, which created the demand and status of the dollar as the global reserve currency. This recent action could certainly be the beginning of dollar destabilization. If that occurs, it most definitely would build on the recent decline in the dollar’s value and be exceedingly bullish for the price of gold.

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Wishing you as always good trading,

Gary S. Wagner