Major Dollar Weakness Limits the Decline of Gold Pricing Today

Dollar Weakness Mitigates Gold Price Decline Amidst Rising Middle East Tensions

Gold prices, both physical and futures, are down about $8.00 to $9.00 today. However, one of the largest contributors working to lessen the price decline is dollar weakness. The dollar has lost 0.62% or 65 points, taking the dollar index to 105.335, a low not seen since Thursday, October 12. Dollar neutrality or strength today would have magnified the downside pressure considerably.

Spot gold according to the KGX (Kitco Gold Index) is currently fixed at $1972.40 after factoring in a decline today of $8.80. The components tell a different story, with dollar weakness strengthening the price of gold by $9.70 and selling pressure by traders resulting in a price decline of $18.50 per ounce.

It seems that today’s net change in gold prices is largely technical, in that the underlying fundamentals that have moved gold higher (rising geopolitical tensions in the Middle East) have not diminished over the weekend. Although the tensions have not diminished, there are international efforts actively engaged in providing assistance and support to Palestinians who are not connected to Hamas as well as the continued effort to find and free hostages.

The Israeli-Hamas war may be spreading not only to the northern borders of Israel but possibly American targets “if they Intervene,” according to Iranian-backed militia group Hezbollah. In a statement obtained by Associated Press, Ahmad “Abu Hussein” al-Hamidawi, head of the Kataib Hezbollah militia, said, “Our missiles, drones, and special forces are ready to direct qualitative strikes at the American enemy in its bases and disrupt its interests if it intervenes in this battle.”

One explanation for today’s decline in gold as the war in the Middle East continues to intensify is that some traders are pulling profits from last week’s price.

This Week’s Major U.S. Economic Reports

There are important reports due out at the end of the week that traders are now beginning to focus on. On Wednesday, the new home sales report will be released for September. Major reports will follow beginning on Thursday. At 8:30 AM EDT, the government will release several reports, beginning with the latest GDP Q3. The report is expected to show dramatic growth from the 2.1% GDP growth in Q2 to a forecast of 4.7% in Q3.

Concurrently, the government will release initial jobless claims for the period ending October 21 which have a medium forecast of 207,000 compared to 198,000 last month. Durable goods orders, durable goods minus transportation, advanced U.S. trade balance goods, advanced retail inventories, and advanced wholesale inventories are all for September.

This Friday, the government released the latest PCE (Personal Consumption Expenditures Price Index) for September. The current forecast of the core PCE index is looking for an increase in inflation from 0.1% to 0.3% month over month.

As of 5:37 PM EDT, gold futures basis most active December contract is currently down $10 and fixed at $1984.40. The December contract traded to a low today of $1971 and a high of $1994.30.

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Wishing you as always good trading,

Gary S. Wagner