Hawaii Six O - Gary Wagner
The U.S. Dollar And Gold Both Gain Value As They Run In Tandem
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
In light of in incredibly strong U.S. dollar or, more appropriately, a dramatically lower Eurodollar, gold has managed to hold onto gains. As of 4:00 PM Eastern standard time, gold futures are currently trading up $5.20 at $1,306.50, a net gain of 0.40%.
The Eurodollar is currently down almost 1.8% on the day at 1.158. This weakness is a direct result of last night’s announcement by the European Central Bank signaling an end to their quantitative easing monetary policy.
According to Reuters, “The European Central Bank will shut its hallmark bond purchase scheme by the close of the year, it said on Thursday, taking its biggest step yet towards dismantling crisis-era stimulus a decade after the start of the euro zone’s economic downturn.”
Beginning in October, the ECB will begin to taper its program to half of its prior monthly bond purchases, limiting the monthly quota to €15 billion. The ECB announced that it would end its purchase of bonds completely by the end of the year. This, in essence, will end quantitative easing on both sides of the pond.
Genuine concerns of a reduced economic growth in the euro zone coupled with a potential trade war and Italian debt could make it harder for the European central bank to dramatically change their monetary policy making it much less accommodative.
These concerns resulted in both the U.S. dollar and gold gaining value. In light of tremendous U.S. dollar strength, gold pricing fared extremely well on the day. Spot gold gained roughly $3.80 in trading today, and as of 4:00 PM Eastern central time is fixed at $1,302.60. While dollar strength contributed to a $16.40 decline in gold, buyers bid up the precious metal $20.20 to more than compensate for dollar strength allowing gold pricing to close positive on the day.
According to many analysts, the fact that gold prices were able to rise considering such a strong U.S. dollar is significant and extremely bullish for the precious yellow metal. The dollar gained 1.24% on the day with the index currently fixed at 94.86, up 1.16 points today.
Lastly, the current trade dispute between the United States and China could certainly have a significant impact on the future value of the U.S. dollar. Historically speaking, dollar weakness can result from the initiation of tariffs in the United States, while a full-blown trade war could provide continued dollar strength.
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Wishing you as always, good trading,