Strengthening Support for the US Dollar Adds to Precious Metal Weakness

By: Donald_W_Dony

The US economy added over 900,000 jobs in July, the most in 11 months and well above the market expectations. Part of the reason is the rapid pace of the COVID-19 vaccinations allowing the country to continue to re-open and promote businesses to hire more workers. This action has driven down the US Unemployment Rate to 5.40%, the lowest level since March 2020.

In response to the bullish employment news, the US dollar index (DXY) extended its upward momentum and reverse its pull back in late July to jump to almost $0.928 in the 1st week of August. A stronger-than-expected number could make the case for faster US policy tightening. Earlier this week, Fed chair Richard Clarida suggested conditions for hiking interest rates might come as early as late 2022.

This bullish economic data plays out well for the greenback but not for precious metals.

Pressured by a stronger dollar and strengthening US Treasury yields, gold prices have dropped to $1764. With increasing strength from the US economy, the safe-haven metal is expected to decline further in the months ahead.

Silver prices, unlike its yellow cousin, has remained well supported for most of this year, until now.

Silver prices just broke down through the key support level of $25.00. Silver, unlike gold, is drawing support from a global shift toward green technologies, such as solar panels, electric vehicles and charging stations.

This underlying demand for the metal should help support silver prices from falling aggressively. The 1st support level is now at $22.75.

Bottom line: As the US economy continues to recover, unemployment numbers are expected decline further and more data supporting an earlier interest rate rise is anticipated. All points toward an elevated US dollar and weakening prices for gold and silver.

We recommend lower any positions in gold and silver at this junction.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2020 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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