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Gold Falls On Stronger Dollar

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Gold Falls On Stronger Dollar

The gold price fell from an overnight rally on Friday morning after the People's Bank of China chose to lower its benchmark interest rates for the sixth time in the last 12 months. After touching as high as $1,180 per ounce in Asia, spot gold sank as much as $5 below its opening price in New York due to a surging dollar and widespread profit-taking. Later in the morning, however, gold managed to trim these losses. Prices sat about $4 per ounce lower (-0.33%) at $1,162/oz by 11 am EST.

Cashing Out

Gold got a huge boost in Asia overnight on more dovish moves by the PBoC intended to stimulate the Chinese economy. Not only does the rate cut mean that China is continuing to ease its monetary policy; it also provides a convincing signal that several other major economies will follow suit—notably, the Bank of Japan (BoJ) and the European Central Bank (ECB). This is bullish for gold (as a sign of a faltering global economy), and helped lift the metal this morning. Traders, seeing a good profit-taking opportunity, sold into the rally when markets opened in the New York, taking profits on the swift surge in the gold price. As the paper gold speculators cashed out, gold was driven back to where it started.

The yellow metal also faced downward pressure from a stronger dollar. The USD was up more than 0.6% on the DXY index to nearly 97.0 as the euro sank against the Greenback.

Source: Bloomberg DXY index daily chart. Source: Bloomberg

Technically speaking, gold has failed to hold above its 200-day moving average around $1,176/oz, providing another "false start" for bullion traders who see a sustained period above this key price level as a strong indicator that momentum has swung back to bullish. The precious metals have been mired in a bear market for the past several years.

The other precious metals were mixed in Friday's trading session. Platinum was $10 lower at just above $1,000/oz, palladium was about 1% higher as it approached $700/oz, while silver was entirely flat above $15.90/oz.

Stocks Rally

As is oftentimes the case, equities moved in the opposite direction of the metals. For the second straight day, stock indices across Asia, Europe, and North America were all traded solidly in the green on Friday. The bounceback was led by McDonald's (NYSE:MCD) and a group of tech companies like the company formerly known as Google—now Alphabet, Inc. (NASDAQ, SWX:GOOGL)—and Microsoft (NASDAQ:MSFT). This helped push both the Dow Jones Industrial Average and the S&P 500 back into positive territory on the 2015 calendar year. Shares of McDonald's, which had been in a slump of late, rallied better than 8% thanks to stronger-than-expected Q3 earnings for the fast food chain.


The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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