Gold prices got crushed on Thursday, dropping 2 percent and settling below the widely watched $1,200 level. And according to traders Jim Iuorio and Brian Stutland, it could get even worse for bullion—especially if the U.S. dollar stays strong.
"When you're talking about the gold trade, my opinion is that it is all about the dollar," Iuorio of TJM Institutional Services said Thursday on CNBC's "Futures Now." "If you look over the last six months, you have had a multitude of reasons to buy gold, and every one of them has been ignored. The only thing that really matters is the dollar."
The U.S. Dollar Index has been risen 8 percent since the beginning of July, and over the past two days has been nicely buoyed by the Federal Reserve's (well-telegraphed) announcement that it would end its bond-buying program. This is thought to be the prelude to a rise in the U.S. central bank's target rates. And if rates in the U.S. rise, owning U.S. dollars will become even more attractive than owning currencies such as the euro or the yen.
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More specifically, Iuorio is focusing the U.S. dollar against the euro (the relationship that makes up the lion's share of the Dollar Index). Since the U.S. central bank is preparing to raise rates, and the euro zone's central bank may be primed to embark on further stimulative measures, Iuorio is with many market participants in predicting that euro weakness against the dollar will persist.
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A rising dollar tends to hurt gold prices, because as the dollar increases in value, it takes fewer of those dollars to buy the same amount of bullion.
And because he thinks the U.S. dollar will continue to rise, Iuorio recommends selling gold futures at the $1,208 level, playing for a move down to $1,175.
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"It certainly seems like the downside momentum's here in gold," agreed Stutland of Equity Armor Investments. "I took some off the table, I closed some gold positions for myself and clients on Friday right around the $1,225 level. I think the momentum is to the downside."
The bearish sentiments on gold expressed by Stutland and himself "almost make me feel foolish to have a safe full of gold and two guard dogs," Iuorio quipped.
Of course, not everyone is with the traders. No less a central bank expert than former Fed Chairman Alan Greenspan said on Wednesday that gold is a good place to put one's money these days, The Wall Street Journal reported.