The gold market, which is trading at a four-month low is entirely at the mercy of the U.S. dollar, which is seeing a surge in momentum, pushing to a four-month high, according to one commodity analyst.
Ole Hansen, head of commodity strategy at Saxo bank said in a report Monday that the two support levels he is watching very closely are $1,300 an ounce and then $1,280 an ounce.
“Multiple failures since 2016 in breaking above an area between $1,365 and $1,375/oz has left the [gold] market nervous with the focus once again on finding support.” He said. “The potential success of these two levels in capping the downside at this stage is mostly in the hands of the dollar and its short-.term trajectory.”
Hansen’s comments come as the gold prices have fallen to within a hair’s breadth of his first initial support target. June gold futures last traded at $1,307.10 an ounce, down 0.92% on the day and its lowest level since late December. The selling pressure in gold was exacerbated after prices fell below the 200-day moving, which came in at $1,313.50 an ounce. Meanwhile, the U.S. Dollar Index is currently trading at 92.37 points, the highest level since early January. Momentum picked up as the index broke above its 200-day moving average, which comes in at 92.01 points.
Unfortunately for the gold market, Hansen said that the U.S. dollar could continue to push higher as investors cover their massive short position. Trade data, he explained shows speculative bearish positions against the U.S. dollar are starting to shift after hitting a seven-year high.
“The current strength of the dollar, driven by short-covering, rising bond yields and a slowdown in Europe, has rattled a market which previously held a general belief that the greenback would continue to weaken,” he said.
Although gold appears directionless, the near term Hansen said that there are positive long-term trends for the precious metal, including an overall uptrend within the commodity sector, higher inflation pressures and ongoing geopolitical uncertainty, even if tensions have eased recently.
“The threat of trade war between the US and China and more importantly the US and Iran remains in place and both could quickly reverse the current lack of focus,” he said.
Hansen added that while the futures market has suffered, there is still healthy demand from retail investors as physical holdings of gold-backed exchange traded products has risen to their highest level since 2013, totaling 2,341 tonnes.
Reference: Kitco
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