King Dollar Throttles Gold, Breaking $1,650 Support

By Barani Krishnan

Investing.com -- There’s no escaping the wrath of the dollar, as gold traders are finding out.

One of the yellow metal’s most sacred support lines that held through its worst selling storms of the past two years — $1,650 an ounce — broke Friday as the Dollar Index continued with its onslaught of one 20-year high after another.

Bond yields, tracking the 10-Year U.S. Treasury note, scaled 12-½ year highs after the latest session peak above 3.8%. The yields reflect so-called real interest rates, or where the market thinks key lending rates set by the Federal Reserve would go.

The Fed on Wednesday raised rates by 75 basis points for a third straight month in a row, bringing key lending rates to a peak of 3.0% — or 0.8% below the bond yield level. To be sure, Fed Chairman Jerome Powell indicated there would be no let up for now in the central bank’s hiking cycle as it battles to bring inflation raging at above 8% a year to its long-standing target of 2% per annum.

Gold’s break below $1,680 “was a big deal but it hasn't really been the catalyst for anything since,” said Craig Erlam, analyst at online trading platform OANDA.

That makes a break of the $1,650 support “a secondary confirmation of the initial breakout” and a “very bearish signal”, he added.

Gold’s benchmark futures contract on New York’s Comex, December, settled down $25.50, or 1.6%, at $1,655.60 per ounce. The session low was $1,648.60.

The spot price of bullion, which is more closely followed than futures by some traders, was down $26.98, or 1.6%, to $1,644.35 by 15:00 ET (19:00 GMT). Spot gold’s bottom for the day was $1,639.96.

“With spot gold cracking $1,640, it could go towards $1,620 next, or even $1,600,” warned Sunil Kumar Dixit, chief technical strategist at SKCharting.com

“However, if the Dollar Index starts to decline from 113 and heads towards 104, the $1,620-$1,600 zone in gold can attract value buyers. But $1,560, which sits at a 50% Fibonacci retracement of gold’s previous rally, is a more convincing rallying point that could bring bulls back to recent highs.”