Gold Prices Reverse Losses as Dollar Sinks

Gold prices had dropped below the $1,180 level in today’s trading, but reversed course as the dollar plunged following the press conference by President-elect Donald Trump. The dollar, which had risen to 102.95 for a high, is currently near 101.45, down 0.58% for the day.

Gold, in turn, reversed course from the low of the session and moved into positive territory. The contract for February 2017 settlement on the COMEX division of the New York Mercantile Exchange is currently at $1,194.7, up 0.60%. The contract is up 1.8% for the week thus far. This follows a gain of 1.8% in last week’s trading.

In addition to today’s drop in the dollar, gold has recently benefited from increasing demand in China ahead of the Chinese Lunar New Year, on January 28.

Gold prices are now within striking distance of the next level of resistance at $1,200. This factor, combined with an extreme overbought reading on the Stochastic, suggests conditions are favorable for a period of consolidation or correction over the near term.

On the downside, support is at the $1,160 level. This level must hold in order to keep gold in position to resume the advance. A drop back below this level would negate the bullish implications of the recent price action and leave gold at risk for a return to the December lows.

It appears that gold is well-positioned to resume the recovery rally once any period of correction or consolidation has run its course, as open interest has risen 10.3% since the December closing low. Typically, moves driven by rising open interest prove sustainable, as this indicates the move was driven by new money entering the market, rather than by short-covering. On a break above $1,200, the next potential resistance is at $1,223.5.

There were no economic releases on the U.S. calendar today. Tomorrow, import/export prices and jobless claims will be released at 08:30 ET.

February 2017 Gold Daily Chart

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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.