Gold Steamrolled by Surging U.S. Dollar Index

May 19, 2015

San Francisco (May 19)  Gold prices ended the U.S. day session sharply lower Tuesday, as a strong surge in the U.S. dollar index early this week has put the precious metals and the entire raw commodity sector back on their heels. Sharp losses in crude oil futures Tuesday were another bearish outside market force working against gold and silver markets. June Comex gold was last down $19.90 at $1,207.70 an ounce. July Comex silver was last down $0.617 at $17.115 an ounce.

Overnight losses in gold and silver were extended in early U.S. trading Tuesday when a very upbeat U.S. housing market report was released, sending the dollar index even higher on the day. Housing starts in April were up 20% and building permits were up 10%--both well above market expectations. The strong housing starts report Tuesday falls into the camp of the U.S. monetary policy hawks that want to see a U.S. interest rate hike from the Federal Reserve sooner rather than later--which is also deemed bearish for the gold and silver markets.

 Importantly, the two-day rally in the greenback is now giving early indications that the recent sell off in the dollar index was just a downside correction in a longer-term price uptrend that is now set to continue. If the dollar index continues its comeback the rest of this week, then odds would significantly increase the dollar index would at least challenge its recent high, if not push above it. And as for crude oil, if the selling pressure continues this week, odds would be high that crude has put in a near-term market top and would then trade sideways, if not sideways to lower in the coming weeks.

The greenback was also boosted Tuesday, while the Euro currency sold off, following remarks from two European Central Bank finance officials who said the ECB could add even more monetary stimulus to the European Union economy in order to meet inflation targets. One official said the ECB may front load bond purchases heading into the quieter summer time period for financial markets activity in Europe. The timing of the two officials’ remarks suggests the ECB could be unhappy with the recent strong bounce in the Euro currency. European stock and bond markets rallied in the wake of the comments from the EU officials, which means there will continue to be more Euros printed, for which to then buy more EU stocks and bonds.

The easy ECB monetary policy and ensuing weak Euro currency of recent months are credited with upbeat EU economic reports Tuesday, as the Euro Zone saw an 11% increase in exports in April, while imports were up 7%. Meantime, consumer prices were unchanged in April, from the same time last year. The unchanged consumer price reading in April was the first time in four months the figure was not negative.

Traders are looking ahead to Wednesday afternoon’s release of the minutes of the latest FOMC meeting. The report will be very closely examined by traders and investors for clues on the timing of any upcoming rate hike from the Federal Reserve.

The London P.M. fix is $1,214.30 versus the previous A.M. fixing of $1,219.65.

Technically, June gold futures prices closed nearer the session low today. Some profit taking and a corrective pullback were also seen as prices Monday hit a three-month high. Gold bears have the overall near-term technical advantage and gained some fresh downside momentum today. Bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at this week’s high of $1,232.00. Bears' next near-term downside price breakout objective is closing prices below solid technical support at $1,190.00. First resistance is seen at $1,215.00 and then at today’s high of $1,225.50. First support is seen at today’s low of $1,205.10 and then at $1,200.00. Wyckoff’s Market Rating: 3.5

July silver futures prices closed nearer the session low today and saw profit taking and a technical correction after hitting a nearly four-month high on Monday. Silver bulls today lost their near-term technical advantage. Bulls’ next upside price breakout objective is closing prices above solid technical resistance at this week’s high of $17.775 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $16.50. First resistance is seen at $17.25 and then at $17.50. Next support is seen at today’s low of $16.87 and then at $16.765. Wyckoff's Market Rating: 5.0.

July N.Y. copper closed down 710 points at 283.55 cents today. Prices closed nearer the session low and hit a three-week low today. The key “outside markets” were fully bearish for copper today as the U.S. dollar index was sharply higher and crude oil prices were sharply lower. Copper bears today gained the slight near-term technical advantage. Copper bulls' next upside breakout objective is pushing and closing prices above solid technical resistance at the May high of 295.60 cents.


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