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Gold: Hard To Be Excited With Dollar Index Above 93

By Investing.com (Barani Krishnan/Investing.com)CommoditiesSep 22, 2020 05:59AM ET
www.investing.com/analysis/gold-hard-to-be-excited-with-dollar-index-above-93-200538401
Gold: Hard To Be Excited With Dollar Index Above 93
By Investing.com (Barani Krishnan/Investing.com)   |  Sep 22, 2020 05:59AM ET
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Another lockdown scare in the U.K. and more dovish remarks expected from the Federal Reserve haven’t done as much for gold as they’ve done for the dollar.

The dollar index was up late Tuesday afternoon in Asia, extending the 0.8% gain in the previous session, when COVID-19 fears and worries over the US Congress’ stimulus impasse drove a selloff across other assets.

More importantly, the index, which pits the dollar against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, has held above the bullish 93-handle for most of the past two months.

“The US Dollar is gaining considerable ground to start the week as stocks slide further,” Rich Dvorak, currency analyst, said in a blog on Daily FX. He added:

“USD price action tends to rise during periods of risk aversion due to its posturing as a top safe-haven currency. This is boosting the DXY Index as the US Dollar strengthens across the board of major FX peers like the EUR, GBP, CAD, and AUD to name a few.”

The spot price of gold, which tracks real-time trades in bullion, was, meanwhile, down $5.82, or 0.3%, at $1,906.38 per ounce. In the previous session, bullion hit a six-week low of $1,883.21.

XAU/USD Daily
XAU/USD Daily

Gold’s Range Wide At $1,900-$1,970

A range of $1,900-$1,970 would be good for gold now, with aspirations for $2,000 and above best left for later. 

“A move above Friday’s high of $1,960 would be an indication of something moving, but for now, it is very difficult to get excited about gold,” Richard Perry of Hantec Markets said in another blog post on FX Street.

With its steadying from Monday’s plunge, gold may have settled immediate fears of a renewed downside momentum build-up, though its largely neutral-to-bearish tone will persist for now. Perry added:

“Daily momentum indicators are sitting very much around neutral levels, with Relative Strength Indicator and Stochastics flat but a shade above 50, whilst Moving Average Convergence/Divergence lines are flat but a shade above neutral.”

“We continue to take any support on gold above the 23.6% Fibonacci retracement (of $1451/$2072) at $1926 as being marginally positive for the gold outlook. However the bulls need to pull above $1,973 to really push towards the key near term resistance of $2,015. The hourly chart shows support holding above $1,937/$1,940 pivot band which sustains the mild positive bias, however, indicators appear neutralised still and the bulls unable to push forward.” 

Sunil Kumar Dixit has a similar view. “If the metal fails around 1927-1935, the correction may extend lower to 100 Day SMA $1,863 and further next 38.2% Fibonacci level $1,836,” says the independent gold chartist.

Fed Chief’s Testimony Could Help Gold Or The Dollar

Gold could muster a way forward if Federal Reserve Chairman Jay Powell’s three-day testimony to Congress, which began on Tuesday, helps the yellow metal catch a bid.

In his opening remarks to Congress, released early to the media, Powell said US economic indicators such as employment, housing and fixed investments for business have improved markedly since the outbreak of the coronavirus pandemic in March.

But more work was needed to restore the nation to the pre-pandemic levels, he said, adding:

“We remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy.”

A couple of months back, such a remark from Powell might have been enough to power gold into $2,000 highs.

Extended Wall Street Weakness Could Hurt Gold

But these days, it’s the dollar that’s likely to catch a bid—illogically as it may be given the yawning US fiscal deficit and its debasing effect on the greenback. Talk of deflation, as much as inflation, has also made investors wary of bulking up in gold.

Says Perry of Hantec Markets: 

“With rising risk aversion standing out as a primary catalyst helping steer the US Dollar higher, the DXY Index could extend its advance alongside the S&P 500 VIX Index, or fear-gauge. If expected market volatility reverts back lower, however, so too could USD price action.”

Referring to the Sept. 16 meeting of the central bank's Federal Open Market Committee, he added:

“The latest advance set forth by broader US Dollar Index reinforces the 92.75-price level as an area of buoyancy, which was a key technical support level identified in last week’s FOMC preview.”

If Monday’s slide on Wall Street continues, then there might be little to hamper the dollar. 

“The equity selloff gathered quite dramatic momentum during the European day and the risk-averse characteristics of the US dollar really came to the fore,” National Australia Bank head of FX Ray Attrill told Reuters.

Disclaimer: Barani Krishnan does not own or hold a position in the commodities or securities he writes about.

Gold: Hard To Be Excited With Dollar Index Above 93
 

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Gold: Hard To Be Excited With Dollar Index Above 93

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Comments (10)
Keith Messmer
Keith Messmer Sep 23, 2020 8:40PM ET
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the falling gold price will offer a buying opportunity eventually.
Sriharaj Gold
Sriharaj Gold Sep 23, 2020 2:14PM ET
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Why noone do not comment on technical ? As today gold is run over technical too much ... is some one try to make up price ?
Dan OGrady
Dan OGrady Sep 22, 2020 1:05PM ET
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The dollar was 94 when gold was 2070. The price depends on future expectations and right now with stimulus MIA, deflation is the expectation.
Large Father
Large Father Sep 22, 2020 12:55PM ET
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So more 3.3 trillion more dollars introduced into a system makes those dollars more.....valuable? Am I missing something here?
Nikolay Marine
Nikolay Marine Sep 22, 2020 12:55PM ET
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we all do
Easy Trade
Easy Trade Sep 22, 2020 12:55PM ET
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Yes, you are. There's much more to it than that. Foreign banks need to hold US dollars to support US denominated debt as well - demand for dollars is rising. It's not a simple market.
Barani Krishnan
Barani Krishnan Sep 22, 2020 10:45AM ET
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DX looks positioned to test 94. As disconnected as possible from fiscal deficit.
Dan OGrady
Dan OGrady Sep 22, 2020 10:45AM ET
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It makes sense it is increasing now but how it didn't go down much further in Q2 is a mystery
Easy Trade
Easy Trade Sep 22, 2020 10:45AM ET
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Dan OGrady  Lots of spare cash and speculation. Big money does the heavy lifting, looks like we have some dollar vigilantes.
Easy Trade
Easy Trade Sep 22, 2020 10:45AM ET
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Investors love the aggressiveness of the US financial response at the moment as well, they have very high confidence.
Fomo Overdrive
Fomo Overdrive Sep 22, 2020 8:27AM ET
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Gold was above 2k with dx at the same level...
Fomo Overdrive
Fomo Overdrive Sep 22, 2020 8:27AM ET
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This was yet abothet shake out
Jason Jason
Jason Jason Sep 22, 2020 8:18AM ET
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Damn. I sell gold at 1900. Hope the chart will go down 😭
Trevor Loomis
Trevor Loomis Sep 22, 2020 7:16AM ET
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Gold could go to $1750 and I would flinch, in fact I would be buying!
sravan kumar
sravan kumar Sep 22, 2020 7:16AM ET
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Its possible very much over the course if next two months
Ioannis Lazaridis
Ioannis Lazaridis Sep 22, 2020 7:16AM ET
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: Hi Kumar. I hold Australian gold miners. I keep some cash so to buy at lower prices. Could you say why gold price could go at around $1.800 ? Thanks in anticipation for your answer.
Rahul Mishra
Rahul Mishra Sep 22, 2020 7:16AM ET
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one reason that I can think of is margin call. when there was a meltdown in equities in March 20, or for that matter in September 2008. gold fell heavily, along with equities. if history repeats itself, the pattern would be the same. having said that, I still believe that gold has a lot of ground to cover. the meltdown in equities might take it to $1770, but eventually, around December 21 gold should be at $3350!!!
Sunil Kumar Dixit
Sunil Kumar Dixit Sep 22, 2020 4:46AM ET
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Amusing to see the DX upbeat rally and more amusing to see people running after the greenback for safe haven 🤣 Gold will complete its cyclical price correction and concurrent time correction which in any case limited. Correction, accumulation and consolidation period may be a bit long but do the governments want the people to believe all is well?
Edward Chong
Edward Chong Sep 22, 2020 4:24AM ET
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long wait. juz hope 1900 can really hold.
Fabio falec
falec Sep 22, 2020 4:24AM ET
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Thanks for the article Barani, it might drop further (mainly depending on US fiscal policy), but equities will have more fun (as much as Silver)! XD
Barani Krishnan
Barani Krishnan Sep 22, 2020 4:24AM ET
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Fabio falec  As Sunil Kumar Dixit says, so disconnected the world is from the reality we live in. DX a haven? I'm not sure the two can even be written side by side in the same sentence :)
 
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