Watch for the Dollar Index to rise above 100
Investors could be forgiven for not being able to recall the last time gold prices traded below $1,000-an-ounce, considering they’d have to scroll back to September 2009 before running into that level.
But don’t think gold is so far removed from that sub-$1,000 level that it can’t revisit that nadir in short order, warned analysts at Citigroup in a note on Monday. And they said it’s all about the dollar.
“We see no reason why gold should not once more trade at $1,050/oz if US$-DXY rises back to the 100-level (now 95.3). Nor do we see anything to prevent gold falling below $1,000/oz if US$-DXY rises above the 100-level,” said the analysts.
US$-DXY refers to the ICE Dollar Index DXY, +0.09% which tracks the greenback against a basket of rival currencies.
Gold hasn’t settled under $1,000 an ounce since September 29, 2009, according to FactSet. Gold GCM6, -0.57% has risen about 18% so far in 2016, one of the best gains for any asset this year. A drop below the $1,000 handle would mean a 20% slump in gold prices from Monday’s $1,250 price tag.
Prices have already seen some pressure this month owing to rising expectations that the U.S. Federal Reserve could raise interest rates at its June meeting. Last week, gold futures posted a second straight weekly loss, setting them on track for a 3% slide in May. Meanwhile, the ICE Dollar Index DXY, +0.07% is down 3.5% year-to-date, but up 2.4% in May so far.
The below chart from Citi shows how the Dollar Index, has “long-term momentum behind it,” the analysts said. Another hint that the Dollar Index could bust past 100 is its strongly rising moving average, they said.
Back to 100? Maybe, says Citi...MORE
As we've said in the past, if you are betting on Armageddon, go buy some junk silver coins.
It's easier to make change when you buy your hundredweight of survival flour.
Gold And Real Interest Rates: "Fed’s Dudley: June is Definitely a Live Meeting"
"Gold Tanks After Fed Minutes"