An equal combination of both selling pressure and dollar strength have once again taken gold prices lower, resulting in gold futures breaking below $1,200 per ounce. Most active December Comex futures are currently trading off $9.30 on the day and fixed at $1,197.40.
As of 2:00 PM Eastern standard time, spot gold is currently trading down by $9.10 and fixed at $1,191.80. According to the KGX (Kitco Gold Index), dollar strength accounts for $4.45 of today’s drawdown with selling pressure adding another $4.65.
As reported in Reuters today, “Gold slipped on Tuesday as concerns over an escalating trade conflict between the United States and China battered emerging market currencies and prompted investors to seek perceived safety in the dollar.” Currently, the dollar index is up 29 points at 95.375, which is a net gain of +0.31% today.
FedWatch Tool Predicts A Rate Hike Is Almost A Certainty This Month
Another factor is found in data released today, the ISM’s U.S. manufacturing index moved to its highest level in over a decade. The index jumped to a 14 year high at 61.3% last month from 58.1% in July, according to MarketWatch. This data reveals that the U.S. economy is robust and growing. This data also supports a high probability that the Federal Reserve will implement another 25-basis point rate hike this month. According to the CME’s FedWatch tool, the probability of a rate hike is currently at 99.8%.
The United States continues to pressure both China and the European Union as the United States prepares to impose an additional 200 billion of tariffs on Chinese goods as early as next week. This combined with President trumps rejection of an offer from the EU to eliminate tariffs on cars has heightened trade war jitters, which could result in continued dollar strength.
One Trillion Dollars
Trade war jitters have also put pressure on U.S. equities which traded fractionally lower on the day with the exception of Amazon. Currently, Amazon shares are up $28 on the day and trading over $2,040 per ounce, resulting in a market cap above $1 trillion. This tremendous benchmark has only been achieved by one other corporation which is Apple.
According to Bloomberg Markets, “America went 242 years without a trillion-dollar company. Thirty-three days after getting the first, it now has two, Jeff Bezos’ online superstore rose as much as 1.9 percent to $2,050.50 in New York, sending its capitalization above $1 trillion for the first time.”
Our technical studies indicate that if gold futures close below $1,200, it would signal a move to $1,178 per ounce or lower. We currently see minor resistance at $1,200 and major resistance just above $1,218 per ounce.
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By Gary Wagner
Contributing to kitco.com