Prices have struggled to regain a foothold at or above $1300 per ounce since May 15, when gold dropped over $28 in a single day. Since the selloff, there have been multiple occasions in which gold has effectively traded to or closed just above $1300. However, gold could not sustain that price point for any length of time.
While we have not seen a series of higher highs, we have begun to see a series of lows above the lows that were achieved just following the selloff in mid-May.
For six trading days following the selloff, gold pricing remains under pressure, trading as low as $1281 before staging a tepid recovery. Over the last six trading days, the lowest price gold has traded to during the day has been approximately $1291, $10 above the former lows.
Gold trades and closes near its 20-day moving average
For the first time since gold sold off last month, gold has closed just below the 20-day moving average. On a technical basis, this is significant in that a close above this average is a real indication that gold is moving back into a bullish mode, with a real potential for higher pricing ahead.
The caveat for recent upticks in gold is rising interest rates and a strong U.S. dollar. Although we do not expect interest rates to move lower, they might, in fact, stabilize after the next rate hike by the federal reserve, which is expected to be initiated at this month’s FOMC meeting.
The most critical component of recent price weakness in gold has been dollar strength. Now for the first time since the end of March, we have seen a potential top in U.S. dollar strength. After reaching an apex at 95 on the dollar index at the end of May, we have seen the U.S. dollar begin to weaken, currently fixed at 93.87 down 11 points on the day.
Continued weakness in the dollar index could take pricing as low as 92.50. A further decline in the US dollar would, of course, be incredibly supportive and bullish for gold. With the current trade dispute between the United States and China entirely at a stalemate, we could see increased volatility in dollar pricing.
Lastly historically speaking the initiation of tariffs has been bearish for the US dollar, and as such the proposed steel and aluminum tariffs which are about to begin could, in fact, have that same effect.
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