Gold Prices Lose Ground Despite Weakness in the Dollar

Gold prices failed to follow through on Monday’s gain, as the contract for February 2017 settlement on the COMEX division of the New York Mercantile Exchange ended today’s session at $1,190.8, down 0.25%.

The rebound on Monday resulted in no improvement to gold’s current weak technical condition, as the recently broken key level of support, at $1,210/$1,205 for the February contract, remained intact as overhead resistance. A sustained close back above this zone is required to improve the near term outlook for gold prices. As long as this level remains intact, the intermediate term target for gold is at the December 2015 low at $1,055.2 an ounce, the next clear level of support on the weekly chart. Near term support is at last week’s low at $1,172.8.

Gold prices tumbled 10% from the November closing high through last Friday’s close, taking out key support near $1,200 in the process. The sell-off in the precious metal has taken place as the dollar has soared, reaching levels not seen in more than 13 years.

Throughout the decline, weak rally attempts have taken place in the presence of what has been an extreme oversold condition since the November 11th sell-off. The short-lived, minor moves to the upside have kept the bias in gold prices to the downside in recent weeks.

While the dollar is currently best described as in a consolidation phase, the greenback appears to be merely working off a severe overbought condition. Longer term, the expectations for rising rates, as well as a bullish technical picture, leave the bias in the dollar to the upside. At present, fed fund futures are pricing in a 96.3% probability of an interest rate increase at the December FOMC meeting, up from 93.5% at the end of last week’s trading. A strong dollar should put pressure on gold prices.

In today’s news, the second estimate of third quarter US GDP was released. Growth was revised up to an annual rate of 3.2%, versus consensus estimates of 3.0%, from 2.9% in the advance estimate. Also, the Conference Board reading of consumer confidence increased sharply to 107.1 from an upwardly revised 100.8 for October, which was originally reported as 98.6. This was the highest reading since the middle of 2007.

In tomorrow’s trading, the ADP employment report for November is expected to show an increase of 160K jobs, from 147K last month, while Chicago PMI is forecast to rise to 52.0 from 50.6. Pending home sales and the Fed’s Beige Book are also due out on Wednesday. Then on Thursday, initial jobless claims are on the calendar, as is the ISM manufacturing survey. Economists expected the figure to rise slightly to 52.1 from 51.9 in October. The key data release this week in the US is nonfarm payrolls for November on Friday. This figure will be particularly important given the expectations for a rate hike in December. Consensus estimate is for an increase of 180K jobs.

February 2017 Gold Daily/Weekly Charts


Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.