A weaker dollar and stronger euro is helping commodities this morning, as gold rebounds to erase all of Monday's losses. Spot gold is once again pushing against the important $1,179-per-ounce level that briefly turned to support last week, when gold hit a 3-½-month high.
The greenback has been unable to break back above the "death cross" it hit last week, with the 50-DMA still below the 200-DMA. This is signalling near-term value descending below long-term value. In the dollar's case, this is primarily being fueled by expectations that the Fed is really nowhere near ready to raise interest rates (which would increase the value of the dollar).
In contrast, gold is still above its 200-DMA, and solidly above the 50-DMA. The 50-DMA has changed direction and started moving upward. If gold can break above resistance and hold near the $1,189/oz level, this trend could possibly form into a "golden cross," and give gold its first positive year since 2012.
As we mentioned before, a weaker dollar is helping gold's rally, thought we should keep in mind that last week's rally occurred in the face of a stronger dollar. As well as the expectations that a Fed rate hike has been pushed back to next spring, robust lending data in Europe pulled the euro common currency up from a 10-day low to put further pressure on the dollar.
If gold once again breaks above $1,179, there is a chance of another round of profit-taking, which was the cause of Monday's drop. Even though the yellow metal has been stronger as of late, erasing virtually all of its losses in 2015, there is little doubt that traders will continue to take profits at each opportunity until there is more clarity about when the Fed will raise interest rates. Until the rate hike situation is resolved, don't expect gold to break higher without being pulled back by profit-taking and consolidation.
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.