US Dollar Strength Derailing Gold

One look at the following weekly chart pretty much says all that one needs to know about what is happening to gold and why. This week and last week, the US Dollar has been higher. Guess what happened to gold over those same two weeks? Yep - it went lower.

The two weeks previous to those the US Dollar was weaker. Guess what gold did back then? Yes - it went higher.

It is all coming back to the US Dollar once again. Simply put, rising interest rates in the US tend to favor additional strength in the US Dollar as traders fear that apparent stronger economic readings will bring the Fed back in on the TAPER SIDE of the QE equation.

When you toss in the fact that Euroland just got hit with a surprise rate reduction yesterday, is it any wonder why traders are favoring the US Dollar right now? It is also helping the greenback immensely that foreign investment appetite for US equities which continue their one-way trek higher is boosting demand for the US currency as well.

All of this adds up to some very difficult headwinds for gold to overcome.

You can see on the chart that the US Dollar is in a slight, but observable upwardly moving price channel. Moves down into support at the rising bottom trendline of the channel, are keeping the greenback above the rectangular support zone noted.

Also, note that the indicator is at levels commensurate with rallies.

By the way, for the ag guys out there such as myself, today's USDA report was considered friendly towards corn and bullish for beans while bearish for wheat. We might have seen an interim bottom in the corn market although we are still talking about a record US corn crop. USDA reduced the harvested acreage number but kicked up the per acre yield. However, the emphasis on this report seems to be on the demand side of the ledger with the agency expecting that to increase due to the low cost in comparison to previous years. Recent  export sales have moved up significantly over the last couple of weeks leading some to expect additional demand to surface.

More on this later....