By Russell Glaser – Gold trading is feeling the squeeze with the appreciating dollar and could be poised for further declines if this type of market environment continues.
The price of spot gold dropped during the morning hours of European trading as the U.S. dollar climbed higher. Spot gold was trading down at $1112 from an opening price of $1126.40. The dollar rallied against most major currencies. Against the Euro the dollar is trading at near a low of 1.4528 from 1.4653, down 0.8%.
Driving the price differential is this week’s Federal Open Market Committee meetings. During the two day meeting the Fed is widely expected to hold interest rates steady and signal it will do so to continue the economic turnaround in the U.S. Other analysts speculate rise in the dollar is due to the currency being oversold and this is simply a temporary price correction.
It is no secret that equities and commodities are known to track the value of the U.S. dollar. However, recently we have experienced a break in the reverse correlation between the price of oil and the dollar, but not with gold. It appears this negative correlation continues to hold and could be a major factor in trading of spot gold.
Trading of the dollar and gold are beginning to show signs of their traditional trading patterns, rising on positive U.S. economic news and falling on negative news. This began with the previous U.S. Non Farm Payrolls and may continue into this week’s trading.
Currently we are seeing heavy buying near the $1100 price level as the price of spot gold has failed to break this major support line. If the price of spot gold can exceed this lower level, traders may see an opportunity at this price to enter into the market as spot gold prices could continue their decline.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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