Gold resilient despite US dollar strength but it may not last

Gold prices fell $6 on Friday to $1171 and closed at the lowest levels since March 19. It's a stark turnaround from three weeks ago, when gold was trading at the highest since February.

What changed since the false breakout?

A better question might be, what hasn't changed? When gold was at $1230 and looked to be breaking out , the feeling was the Fed was about to break. That Yellen was about succumb to a poor string of data and admit disappointment about the economy, and by extension that rates would stay lower for longer.

But Yellen didn't change. In her May 22 speech she retained an upbeat outlook; repeating that the slowdown early in the year was due to temporary factors. That helped to guide prices lower.

No rally on US dollar weakness

The story in the early part of the past week was a sharp decline in the US dollar. That usually a trigger for gold strength but aside from a quick trip above $1200, gold couldn't make any progress. When something can't rally with that kind of tailwind, it's a sell signal and that proved to be the case.

The US dollar found a footing later in the week and rallied after Friday's strong non-farm payrolls data. The economy added 280K jobs compared to 225K expected and the report was littered with positive details. Later in the day, the Fed's Dudley -- who is usually a dove -- said liftoff is still most likely to come this year and that he's more confident in rising inflation.

The break below $1170 points to continued declines to the lows of the year at $1147.

Two things could help gold

Firstly, the chart isn't that bad. Gold managed to close above the May lows on Friday and that means the breakout to the downside could end up in the same kind of false breakout as May's rally. And the bulls should be comforted that a substantial US dollar rally only led to a $6 decline Friday.

Second, the situation in Greece is splintering. Tsipras is digging in his heels and vowing not to back down while the IMF/EU continues to try to turn the screws. We continue to believe that a Grexit is a highly unlikely scenario but if it happens, or even if Greece initiates capital controls, gold will get a lift.