Gold Price at Risk Near-Term on a Return of USDollar Strength?

Talking Points:

-Gold at risk of deeper correction on a return of USDollar strength.

-Gold likely supported at producer breakeven levels.

-Seasonality favors gold strength in May, third and fourth quarter.

After gold price failed to break key resistance levels, we have seen it fall almost 7% since March and year-to-date highs just below $1,400. A massive selloff on April 15th helped push us back below $1,300 and the 200 day moving average. Meanwhile, a return of USDollar strength could help add to pressure on gold as it searches for strong support. Although retail crowds have been trying to buy into USD weakness for weeks, we have finally seen the SSI readings on some USD pairs turn positive including a flip in AUDUSD on April 17th. As noted by Kristian Kerr, the middle of next week is important from a time perspective and continued weakness could lead to an important low.

Spot Gold Price vs. Dow Jones FXCM USDollar Index

Gold Seasonality Study

Gold Price and Key Terms Correlation Chart

After the largest selloff in gold in over 16 weeks, it is important to discuss the Chinese Yuan as we have detailed in our special reports on commodity backed loans, copper and gold. The offshore rate hit lows not seen in over a year as it breached the 6.23 level overnight in Hong Kong. The USDCNH pair remains dangerously close to 6.25, said to be the level where large amounts of exposure in the leveraged commodity (copper and gold) backed loans is located. Such selling at market on any sudden depreciation of the Yuan could spell further trouble for metals such as gold, copper and silver.

Read more about the Chinese Yuan and gold selloff.

Read more on event risk for Gold and foreign exchange this week.

Gregory Marks, DailyFX Research Team

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