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Sinking U.S. Dollar Continues To Support Gold

Commentaries & Views

Dollar weakness continues to accelerate, with the dollar index breaking below 90 today. As of 4:00 PM Eastern standard time, the U.S. dollar index is trading off by 51 points and is currently fixed at 89.58. This marks the second consecutive day of lower pricing.

The dollar has been in a defined, slow, and methodical decline since November of last year when the dollar index was trading at roughly 95. This correction continued until the first week of February when the dollar index traded as low as 88.40. What followed was a short and shallow upside bounce taking the dollar index to 90.50 on Friday of last week.

Over the last two days, the U.S. dollar has once again come under pressure and is giving up roughly 1% of value since reaching the highs achieved last week. It seems highly likely that the dollar is returning to its overall bearish demeanor. If that is the case, we can expect the dollar index to challenge the recent lows of last month once again.

This, of course, has been a bullish factor for all commodities priced in U.S. dollars and has been instrumental in helping gold prices find a base last week and then moving to higher pricing over the last two days.

Yesterday’s gains were the direct result of almost equal parts of dollar weakness and buying. Gold gained roughly $7.60 yesterday with $4.20 of those gains attributable to a weakening U.S. dollar and the remaining $3.40 directly attributable to gold buying.

Today’s gains are over 99% due to dollar weakness. According to the Kitco Gold Index, spot gold is currently trading up $6.20 on the day. However, only $0.10 of today’s gains can be attributed to buyers bidding up the precious yellow metal with the remaining $6.10 directly attributable to dollar weakness.

U.S. equities closed marginally higher today with the Dow Jones Industrial Average gaining 39 points to close at 24,640.45. The most noteworthy characteristic of today’s trading activity in U.S. equities were price swings from positive to negative. At its low, the Dow is down 104 points. At its high, it was up over 180 points resulting in a price swing of approximately 280 points on the day.

Since beginning the lows of the correction last week, all three major indexes have gained back roughly 5% of the losses which occurred last week. It is the shallowness of this most recent correction which is clearly indicating overall market strength which is a reflection of the solid economic backdrop.

I still believe that the current market scenario favors higher pricing in U.S. equities and gold.

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Wishing you as always, good trading,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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