Gold Prices Collapse Under Pressure of Rising U.S. Dollar

December Comex Gold traders continued to react to yesterday’s release of the somewhat hawkish Fed minutes on Thursday. The selling pressure was strong enough today to take out the recent bottom at $1281.00, changing the trend to down on the daily chart and setting up the market for further downside action.

The rally in the stock market continued to attract more investors away from gold. In addition, the stronger U.S. Dollar dampened demand for gold by foreign investors.

Thursday’s data was positive for the U.S. economy and dollar. Weekly Jobless Claims dropped and August Flash Manufacturing PMI jumped to its highest level since 2010. In addition, the Philly Fed manufacturing index rose to its highest level since 2011. Existing Home Sales rose 2.4% in July along with the U.S. Leading Economic Index which was up 0.9% in July.

The strong economic data helped pressure the British Pound, but the GBP/USD fell anyway even as U.K. Retail Sales rose more in July than economists forecast. The Fed July minutes which suggested the U.S. could raise interest rates before the Bank of England also continued to weigh on the Sterling.

The EUR/USD traded higher and is in a position to post a technical closing price reversal bottom. This move is being supported by short-covering and position squaring ahead of a speech by Fed Chair Janet Yellen on Friday. The fundamentals continue to favor the U.S. Dollar over the Euro so this short-covering rally is likely to be short-lived.

October crude oil futures rallied on Thursday. This also was short-covering after a prolonged drop in price. Oversupply is still the major concern. Geopolitical events have had almost no effect on the price action. On Wednesday, the Energy Information Administration reported a surprise drawdown in supply. This news may be the main reason behind today’s profit-taking and position-squaring. Because the market is awash in crude oil, this rally is not likely to last very long and will likely be treated by traders as another shorting opportunity.