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Price of Gold Fundamental Daily Forecast – Gold Investors Could Feel Major Pain if Dollar Index Blows Through June Top

By:
James Hyerczyk
Published: Jul 19, 2018, 08:39 UTC

Based on Wednesday’s late reversal to the upside in gold and today’s early weakness, I expect to see prices continue to be guided by the movement and direction of the U.S. Dollar. The inverse relationship between the two couldn’t be clearer at this time. So this will be our indicator for gold prices until proven otherwise.

Comex Gold

Gold futures are trading lower shortly before Thursday’s regular session opening. Buyers tried to fuel the start of a short-covering rally on Wednesday, but there was no follow-through rally earlier today and they threw in the towel.

This has allowed short-sellers to regain control. They drove the market through yesterday’s low, confirming the downtrend and putting the market in a position to challenge the January 27, 2017 bottom at $1217.20.

At 0815 GMT, August Comex gold futures are trading $1218.30, down $9.80 or -0.79%. This is up from an intraday low of $1217.60.

The bottom at $1217.20 is very important because there is literally no support under this level until the December 15, 2016 main bottom at $1158.40.

Gold was pressured early in the session on Wednesday by a second day of hawkish testimony from U.S. Federal Reserve Chairman Jerome Powell. Speaking before the House Financial Services Committee on Wednesday, Powell reiterated the remarks he made to the Senate Banking Committee the previous day.

Basically, Powell said the economy was strong enough to handle tighter monetary policy, and this means at least two more rate hikes this year. These comments erased some of the fears by Treasury investors who returned to the market on Wednesday with sell orders in hand. The rising Treasury yields helped make the U.S. Dollar a more attractive investment, while driving down foreign demand for dollar-denominated gold.

What Treasury investors particularly liked about Powell’s comments was his consistent line of thinking regarding monetary policy. Furthermore, it demonstrates that monetary policy is likely to move in a predictable manner, although Powell left the door open for changes in case the economy slows down.

Forecast

Based on Wednesday’s late reversal to the upside in gold and today’s early weakness, I expect to see prices continue to be guided by the movement and direction of the U.S. Dollar. The inverse relationship between the two couldn’t be clearer at this time. So this will be our indicator for gold prices until proven otherwise.

The early trade in the Treasury futures market shows yields are rising. This is helping to increase demand for the dollar. And as long as the dollar remains underpinned, gold will be under pressure.

The September U.S. Dollar Index is rapidly approaching its recent high at 95.255, reached on June 28. Trader reaction to this level should set the tone in gold later today. If it proves to be resistance then gold short-sellers could begin to book profits. If dollar bulls take out 95.255 with conviction then gold prices could plunge.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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