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Weaker Dollar Helps Lift Gold Price

July 18th, 2017 by

The precious metals were higher again on Tuesday, buoyed by a continued slump for the U.S. dollar. Spot gold was trading above $1,240/oz this morning, more than 0.5% in the green. The Platinum Group Metals were slightly above unchanged. Spot silver added 11¢ (almost 0.7% higher) to reach $16.19/oz.

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There finally appears to be some positive momentum building in favor of the gold market. Gold futures finally broke their five-week losing streak last week. The performance on Monday and Tuesday are offering traders more encouraging signs. Technical analysts have cited $1,236 per ounce as an important resistance level for prices from a chart-oriented perspective. Any sustained rally above this price could trigger technical buying that would place even more upward pressure on prices.

One of the main reasons for gold’s continued rally has been a particularly weak dollar. As measured by the DXY index, the dollar was down another 0.5% this morning to just 94.6 on the index, extending the greenback’s 10-month low. By direct contrast, the British pound sterling is trading just off of its 10-month high.

Here’s a look at Monday’s closing numbers for stocks:

Nasdaq: 6,314 (+0.03%)
S&P 500: 2,459 (+0.01%)
Dow Jones: 21,630 (-0.04%)

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© Jan Miks | 123rf.com

As you can see, stocks were virtually flat during Monday’s trading session. Equities in the U.S. have performed well while the bond market, which saw a rush of safe-haven demand last week, has begun to cool off. 10-year Treasury yields fell to 2.29%. The surge of money flowing into the equity market can somewhat be explained by cyclical factors: second-quarter earnings are still being reported across Wall St, which always attracts new investors. Of course, there’s always a sufficient amount of greed and speculation to go around. Stocks in Europe were off more than 1% on Tuesday while U.S. indices opened sharply lower, as well.

The most recent inflation numbers in the U.K., in addition to the strength of the pound sterling, may cause the Bank of England to back off of raising its benchmark interest rate anytime soon. After inflation came in at a robust 2.9% clip in May, the measure has come back down to earth, which would hurt the case for hiking rates. On Thursday this week, the European Central Bank (ECB) and Bank of Japan (BOJ) will each hold meetings (separately, of course). No changes in monetary policy are expected from either central bank.

 

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.