Gold Price Weighed Down By Another USD Bounce

New York (Sept 21)  Trading outlook: The dollar remains a key function of how the gold price moves. Dollar moves have been uncertain now for a couple of weeks and the outlook for gold is equally lacking conviction. A dollar rebound today is weighing on gold this morning, but this is still within the consolidation range of recent weeks. We still hold a positive outlook on gold moving medium to longer term and see near term gold weakness as a chance to buy.

Fundamentals/Newsflow

The dollar has been fluctuating in the wake of the FOMC meeting. Coming into the new week though, we are seeing significant risk aversion is weighing across major markets on fears of a second wave of COVID infections spreading through Europe. It was interesting that just prior to the European open the dollar was trading lower and gold slightly higher. This has been flipped on its head as European equities have sold hard today. The dollar (as a safe haven play) has rebounded and this has weighed on gold. The negative correlation between the two is still a key factor.

Despite this though, we can see that there is little overall direction on the dollar in the past couple of weeks. Subsequently gold has also been struggling for direction. Although USD has ticked higher today, we still see Dollar Index being limited under 93.50/94.00 resistance. This should help to support gold in the $1902/$1926 band of lows. Whilst this period of consolidation on the dollar plays out, we remain neutral on gold.

The main caveat we also need to keep an eye on is the futures positioning for the dollar. There has been a net dollar negative positioning for a while as sentiment has turned sour for the greenback in recent months. Is this set up for a short covering rally?

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