Gold would have traded lower today if it was not for the dollar's weakness. The dollar is currently down 0.543 points or 0.52% with the dollar index fixed at 104.615. Concurrently, gold futures basis most active April contract is trading up $7.00 or 0.40% and fixed at $1824.10. This means that dollar weakness accounts for over 100% of today’s gains in gold. The resulting net change of gold is based on the dollar weakness and fractional selling pressure in gold.
The same relationship between gold and the dollar can be seen in the physical or spot market. According to the Kitco Gold Index (KGX), spot gold is currently fixed at $1818.10 after factoring in today’s net gain of $6.90. On closer inspection dollar weakness resulted in spot gold gaining $9.80 with fractional selling pressure taking back $2.90 of those gains.
The question becomes what fundamental events could explain dollar weakness today? For that we need to look at two reports released today.
The first report revealed that new orders for manufactured durable goods decreased by $13 billion or 4.5% coming in at $272.3 billion.
The other report released today was pending home sales in January by the National Association of Realtors. This report revealed that pending home sales improved for the second consecutive month. Collectively all four U.S. regions posted that pending home sales increased by 8.1% month-over-month. However, when you look at the data year over year pending transactions decreased by 24.1%.
When you look at the durable goods and pending home sales (year-over-year) they both indicate that the economy in the United States is contracting. This seems to be the most plausible explanation for dollar weakness today which led to the fractional gains in gold.
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Wishing you as always good trading,
