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Gold Price Lower on Strong Dollar

December 9th, 2016 by

Another rally for the dollar to close out this week has knocked the precious metal prices slightly lower again on Friday. Stocks and crude oil were both higher as markets opened. The gold price trended about 0.4% lower by 9:45 am EST, slipping below $1,170 per ounce, while silver prices were a bit more robust, adding a modest 0.1% (the equivalent of 2¢ per ounce) to trade right around $17.10/oz.

Risk-On Remains

rally

The seemingly insatiable level of risk appetite in the financial markets has helped propel stock indices in the U.S. to unprecedented levels. Traders and investors continue to bask in the risk-on sentiment that has characterized markets since Donald Trump’s victory in November’s presidential election.

Stock markets around the globe were almost unanimously in the green on Friday morning, as the Nikkei 225 and Shanghai Composite closed 1.2% and 0.5% higher overnight, respectively. European indices also opened in positive territory, led by France’s CAC 40 (+0.5%), following yesterday’s dovish move by the European Central Bank (ECB) to extend its quantitative easing stimulus through the end of 2017. The EU is also dealing with how Brexit will effect financial institutions operating in the U.K.

In the U.S., the Dow Jones Industrials and the S&P 500 have both hit all-time highs this week. Equities seemed poised to improve further upon these lofty valuations, as stock futures pointed upward at the opening bell in New York. A release of the University of Michigan’s consumer sentiment gauge later today could add fuel to this feel-good “Trump Claus” rally.

International Outlook

With the ECB decision to extend QE coming just as everyone expects the Federal Reserve to raise interest rates next week, we are once again seeing the divergent monetary policy between the U.S. and Europe playing out. The USD/EUR exchange rate is approaching $1.05, its lowest level of the year, as the dollar continues its rally. The DXY index popped 0.4% higher once again on Friday, trading above 101.5. Some believe the two currencies could come into parity by year-end.

There has still been subdued gold buying in India due to the country’s cash crunch and increasingly anti-gold platform. Meanwhile, the premium on gold sold in China is near a three-year high compared to the London fix. This indicates growing demand. Gold prices remain near their 10-month low despite the crude oil market continuing to rally on expected production cuts from OPEC. However, with non-OPEC members like Mexico waffling on whether (and how much) they will actually cut oil output, OPEC leader Saudi Arabia has also  indicated it might eschew the agreed-upon cuts if it believes it will lose too much market share.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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