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Dollar Strength Continues To Move Gold Lower

Commentaries & Views

Now for the fifth trading day in a row, we have seen gold trade and close lower on the day. It began with Friday's dramatic plunge when gold opened at $1,305 and closed $26 lower at $1,279. From that point forward, each day gold closed below the prior low creating a new all-time low for 2018.

This trend has continued for the last five consecutive trading days and, based upon the fundamentals behind the current selloff, could continue.

Since April 10, when gold reached the current price apex at $1,370 per ounce, gold is traded under pressure and losing value. The clear majority of gold's spiral downward has been directly attributable to U.S. dollar strength.

On April 10, the U.S. dollar index traded just above 89. Since then it has moved to trade to a high just shy of 95. That 6% gain in the value of the dollar converts to precisely to the same drawdown in the value of gold, and that is before you add the price change due to selling pressure.

The $100 drop from the highs of $1,370 to gold's current pricing at $1,269 represents a decline of 0.073%. In other words, the strong U.S. dollar has been directly responsible for 85% of the recent decline in gold pricing.

However, that does not explain why gold is not reacting as a safe-haven asset during these times of uncertainty, especially due to the trade dispute which is quickly turning into a full-blown trade war between the United States and China.

In an interview with MarketWatch, Chintan Karnani, chief market analyst at Insignia Consultants in New Delhi, said, "Sentiment for gold is bearish. Safe-haven demand due to the so-called ‘global trade war' is not there."

David Madden, market analyst at CMC Markets, said, "Historically gold has benefited from the flight-to-quality effect, but that hasn't been the case in recent months. Lately, the inverse relationship between gold and the U.S. dollar has been strong, and that is the case today."

While it is clear that recent U.S. dollar strength has been the underlying force resulting in dramatically lower gold prices, selling is also a component. The safe-haven asset of choice has clearly been the U.S. dollar.

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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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