Gold Plunges on a Strong Dollar

Gold Plunges on a Strong Dollar

Gold dropped to its lowest level since December 2016 to $1,160.16 on the back of a surging US Dollar. The correlation between gold and the US Dollar is in full play here.

Globally you can only trade Gold in US dollar so a rising dollar means that any other country outside of the USA has to convert their currency to dollar first if they want to buy gold.

If I want to buy gold and I have Euros it is going to cost me more euros to buy US dollars.

Currently exchange rate approximately $1 to 1.14 euro. I need 1,160 dollars to buy I ounce of gold. This will cost me 1,017 euros.

If the rate was say $1 to 1.25 euros (Back in February 2018) this would have only cost me 928 euros to buy an one ounce of gold.

The strong dollar is making it much more expensive for gold buyers all over the world, as they have to convert their currencies to US dollars to buy gold which dampens the demand.

Demand and supply is how markets work. Lower demand means lower prices, higher demand means higher prices. You have to look beyond the actual price and identify the reasons why markets are moving in one direction or the other.

If you plan to trade gold look to the US dollar for guidance. If the US dollar continues to surge higher next levels for gold are $1,126-$1,142 and a break below that zone would see $1.059-$1,047 come in to play. (Marked in red lines on the chart)

Remember success in trading is down to many factors with timing of your entries being one of these factors. We may see a pullback in gold this week as traders take profits and re-evaluate their next move based on US dollar direction.

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