Spot Gold Falls as Currency Takes Center Stage

NEW YORK ( -- Spot gold prices are quoted sharply lower Friday morning as the rally in the U.S. dollar index is taking its toll.

Spot gold is currently trading at $1423.43. The paper gold SPDR Gold Shares ( GLD) is trading down $2.37 at $138.44. The world currency markets appear to be taking center stage as the Japanese yen continues to plummet and the Aussie dollar is in the midst of what could be a very large downside breakout.

The rounding top in the dollar index that we have discussed has been negated, and it would seem to us that further dollar upside is likely. Should this be the case we feel that gold will continue to come under pressure,. With gold's failure to take prices above the 62% retracement of the down move, it would seem to us that a re-test of the April lows is now in the cards.

Courtesy of QST

Gold is not getting any help at all today from its friend crude oil, which is trading sharply lower as well, down almost $3 per barrel. Equity markets today appear to be a non-factor.

Improving economic data also continues to weigh on bullion prices, and it seems that the odds of the Fed expanding its stimulus at this point are slim to none. In fact, there is talk of the fed approaching the end of its QE program and that could contribute to dollar strength and gold weakness going forward.

Thursday, Federal Reserve Bank of Philadelphia President Charles Plosser discussed the QE program and how he feels the potential costs outweigh the benefits -- a hawkish tone that sent the dollar moving higher yesterday afternoon.

Should the economic data continue to show improvement, and should the jobs situation specifically show more improvement, then we would expect to hear more such "hawkish" rhetoric coming from Fed members as the central bank gets closer to unwinding its bond-buying programs.

Should this prove to be the case, it is likely that gold continues to work lower and even take out the April lows. We feel the currency markets will be the key driver for gold prices for the foreseeable future and that strength in the U.S. dollar index could play a key role in lower bullion prices.

Please visit our Web site for updates on the gold market and useful information for purchasing the physical metal.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Matt Zeman is a trader at Kingsview Financial. He began his trading career as a runner in the grain pits at the Chicago Board of Trade before becoming an arbitrage clerk. Eventually he started trading equity options and stocks. Matt now is a full-time futures broker and also authors a blog for gold investors at Appreciate Gold. He has been a frequent guest on CNBC, Fox and Bloomberg, and provides his views on the stock, bond and futures markets for financial media including Dow Jones, the L.A. Times and The Associated Press. Matt is a member of the Chicago Board of Trade, and carries series 3, 7 and 66 licenses.

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