A firm dollar is adding pressure to gold's inability to break back above $1500.00. The steep pennant pattern that has formed since the April drop and recovery is now looking weak with today's close on the trend line at $1431.00.The metal peaked at $1488.07 on May third.
Prices of commodities that are denominated in dollars tend to move inversely with the value of the dollar. As each dollar become more valuable, it buys more of a set amount of any item priced in dollars.
The close at the bottom of the day's $1426.04-$1448.55 range makes a test of trend line support likely. Since the post-fall top on May third gold has made a series of lower highs and last Friday broke below the $1441.00 support that had been the bottom since April 25th.
One determinant of gold's direction over the next few months will be the quantitative easing policy of the US Federal Reserve. If the Fed begins to taper securities purchases in the face of improving economy, gold could face additional selling as the inflation hedge potential diminishes further. If the Fed continues its $4 billion a month securities purchases, the inflation support for gold, even if at this stage price hikes are almost entirely theoretical, will remain.
Chief Market Strategist