You Better Keep An Eye On This…
Gold bears are roaring again…
The yellow metal is down 5% in September as investors make way for a resurgent US Dollar. In case you’re unaware, the Greenback is experiencing a phenomenal rally thanks to recent news out of the Federal Reserve.
According to Fed Chairwoman Janet Yellen, the US central bank is ready to do away with the robust stimulus program that has been in place since September 2012.
That’s right, quantitative easing (QE) is likely coming to an end next month.
Take a look at what this news is doing to the US Dollar…
As you can see from this multi-year chart, investors are piling into the Greenback with reckless abandon. The US Dollar index is already up 5.3% in 2014 and looks poised for further gains. The currency recently broke through major technical resistance at 85 and doesn’t have another hurdle until the 88 area (red line)- the high set in 2010.
Look what the surging Greenback is doing to gold…
As you can see, the yellow metal is trading sharply lower over the past few months. With inflation still running at tepid levels and investors hungry for the US Dollar, gold is clearly suffering.
However…
The green line marks a very important multi-year technical support area at $1,200 an ounce. There’s no question gold bulls will make a valiant effort to protect this level. As a result, we may see the yellow metal bounce higher in the near future.
But the real question is will this important support level ultimately hold?
Given the strength of the US Dollar, gold will be hard pressed to realize substantial gains.
Of course, there could be incoming economic data discrediting this theory. Maybe inflation will make a dramatic jump higher when it’s reported on October 15th.
Bottom line…
Despite the metal nearing major technical support at $1,200, gold is facing an extreme headwind due to the surging US Dollar and low inflation. However, we’ll need to closely watch for incoming economic data capable of shifting this trend.
Until Next Time,
Justin Bennett
Category: Gold
