Gold decline continues after last week’s strong weekly price drop
Prices of both spot and futures gold declined between 0.30% and 0.40% today, a direct correlation to dollar strength and higher U.S. Treasury yields. The dollar gained 0.35% in trading today taking the index to 103.05. After last week’s dramatic decline in gold, the first trading day of the week is indicating a continuation of the down-trend based on the most recent economic data.
Economic strength and continued inflation will result in a “No Landing” scenario
Last week, data showed that the U.S. CPI (Consumer Price Index) rose moderately in July. But because producer prices increased slightly more than expected, members of the Federal Reserve are expressing concerns that their fight against inflation is not over and as a result could keep rates higher for longer.
The most recent economic data shows that the economy in the United States is strong and resilient and for the most part has led the Federal Reserve and economists to believe that a recession is not likely. The new acronym for the end game from the aggressive monetary policy of the Fed is no longer a “hard landing” or a “soft landing” but a “no landing”.
The meaning behind this acronym is that economic growth that is too strong to allow inflation to fall to the Fed’s target of 2% easily, suggesting that the Fed will need an additional rate hike to secure the proper path to their 2% target.
However, according to the CME’s FedWatch tool that will not occur at next month’s FOMC meeting with an 88.5% probability that the Federal Reserve maintain its current interest rate of between 5 ¼% and 5 ½%. Investors are awaiting the next important event the release of last month’s FOMC meeting minutes on Wednesday.
As of 3:35 PM EDT, gold futures basis the most active December contract is currently trading down $6.70 or -0.35% and fixed at $1939.80. This after breaking below a key technical price level the 50-day simple moving average last week. Spot or Forex gold is currently trading -0.27% lower and fixed at $1907.80.
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Dollar strength is entirely responsible for gold’s price decline today. It was certainly the major component moving gold lower. The dollar is currently up 0.32% and the index is fixed at 103.015.
On a technical basis, we could see continued downside pressure in both gold and silver as dollar strength continues to dominate price fluctuations in the precious metals. If gold prices continue to fall look at the current major support level which is between $1888 and $1906.
Gary S. Wagner
Tim Moseley