Strong Dollar Drives Gold Lower

April Gold prices finished lower on Thursday as investors continued to liquidate their long positions and hedgers sold off their long side protection. Also contributing to the drop in price was the surge in the U.S. Dollar.

The Greenback rallied sharply higher on Wednesday and overnight after Fed Chair Janet Yellen suggested yesterday that the central bank was considering raising interest rates starting in spring 2015. U.S. Treasury interest rates rose on her comments, making the U.S. Dollar a more attractive investment. Since gold is priced in dollars, it may appear to be more expensive to foreign investors, thus reducing demand.

Gold should remain under pressure as long as it remains under $1335.50. The next major downside target is $1306.25.

May crude oil edged higher on Thursday. Technical factors are contributing to this rally since many oscillators and indicators are indicating oversold conditions. Today’s rally took place despite the bearish Energy Information Agency report released on Wednesday. The EIA report showed U.S. crude oil stocks rose a greater-than-expected 5.9 million barrels the week ended March 14.

The chart indicates the short-covering rally could take the market back to the retracement zone at $100.74 to $101.62. Since the main trend is down, short-sellers are likely to re-emerge following a test of this zone.

Renewed selling pressure helped push the EUR/USD lower on Thursday. The move was a continuation of the sell-off which started yesterday after Fed Chair Janet Yellen suggested the central bank could begin hiking interest rates as soon as six-months after it ends quantitative easing in August 2014. Technical factors also contributed to the sell-off as the Forex pair crossed to the weak side of several support levels.

Fundamentally, German Producer Inflation was unchanged and missed the estimate of 0.2%. The U.S. Dollar benefited from a positive Weekly Jobless Claims report and robust Philly Fed Manufacturing Index data. Existing Home Sales were in line with expectations.

Yellen’s comments and the friendly U.S. economic reports also helped drive the GBP/USD down on Thursday. The main trend is down on the daily chart and the downside momentum suggests further weakness under a key support level at 1.6469.

The possibility of a Fed interest rate hike sooner than expected was the catalyst behind the dollar’s strength, but today’s reports also supported the move. If the Greenback has bottomed then look for continued weakness in the Euro and British Pound. Gold should continue to break too, but losses may be limited because of outside events such as the situation in Ukraine. Crude Oil is the wildcard. The moves taking place in this market have been counter-intuitive.