Indecision and Weak Dollar Drive Gold
Today’s Spotlight Market
Gold futures have flirted with the $1,300 mark over the past several sessions, but prices have been unable to push through and close above this pivotal level. The main driving force behind the Gold rally has been the weak US Dollar. The Fed did little to help the greenback, which broke some key technical support levels. This suggest the Dollar Index may continue to tumble for the foreseeable future, barring a sharp technical reversal.
Fundamentals
In addition to the weak US Dollar Index, central bank policy has aided Gold?s recent rise. The Bank of Japan?s decision to keep rates steady instead of diving deeper into negative territory drove the Yen higher. It also opened the door for long-term inflation risk. Japan faces deflationary pressure in the near-term, but an extended negative interest rate policy has the potential to create severe inflationary risk down the road. The BoJ move also adds to the air of uncertainty surrounding financial markets. Central banks have become more indecisive, sending mixed signals to traders. Add lackluster economic activity to this and you have all the ingredients in place for defensive traders moving into Gold. The trouble with the Gold rally is the lack of physical demand for the metal. There is a feeling among traders that the rally in Gold and other commodities could be overdone, at least in the short-term, suggesting we could see some consolidation or retracement.
Technical Notes? -? View Today’s Chart
Turning to the chart, we see June Gold futures contract testing resistance at the 1300 mark yesterday before falling back. The gravestone doji candlestick suggests prices may hint at a possible near-term reversal. Traders may be on the lookout for follow through to confirm the reversal pattern. The RSI indicator is creeping toward overbought territory, which could lead to some price weakness in the near-term.
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