Remove the support from dollar weakness and gold would have gone down much more.

Since last Friday, the US dollar has been trading under pressure, losing value on Friday, Monday and Tuesday. During the same period, gold traded under slight selling pressure, holding a price just above $1,700 an ounce. Recently, the dollar peaked just above 109 on Thursday July 14 before falling for three consecutive days. However, even with dollar weakness on three of the past four trading days, gold has not gained significant value.

The decline in the value of the dollar has done little to lift gold prices. Instead, they kept gold from selling off significantly, keeping the precious yellow metal barely above $1,700 an ounce. On Thursday and Friday of last week, gold prices fell below $1700 on an intraday basis, but each time closed just above this key and important psychological price level.

Today, the dollar saw further price gains. As of 5:10 p.m. EDT, the Dollar Index is currently pegged at 106.925 after factoring in today’s gain of 0.35%. Meanwhile, gold futures lost $16.40 or 0.96%. This clearly illustrates that today’s strong dollar has added to the selling pressure on gold, but only by a percentage of the overall decline in gold today.

Spot Gold is currently pegged at $1696.40 after factoring in today’s drop from $16.40. On closer inspection, the strength of the Dollar led to a decline of $5.50, with the remaining decline of $10.90 being directly attributable to selling pressure. This is according to the KGX (Kitco Gold Index).

The recent strength in the dollar and weakness in gold can be directly attributed to the hawkish monetary policy of the Federal Reserve, which has raised rates at every consecutive FOMC meeting since March of this year. Gold traded at its highest level this year in March at $2078. This matches the first interest rate hike by the Federal Reserve which also took place in March. Over the past four months, gold has fallen $383, losing nearly 18½% in value.

Exactly one week from today, the Federal Reserve will conclude the July FOMC meeting and will almost certainly announce the fourth consecutive rate hike this year. It is widely expected that the Fed will raise rates again by 75 basis points. However, they could raise rates by 100 basis points, although this is widely believed to be unlikely according to the CME’s FedWatch tool. Currently, this rate hike indicator predicts that there is a 67.9% chance that the Fed will raise rates by 75 basis points next week and a 32.1% chance that it will raise rates by 100 basis points.

This rate hike indicator has had dramatic changes in its forecast. A week ago, on July 13, the Fed watchdog predicted that there was an 80.3% chance of a 100% rate hike and a 19.7% chance of a 100% rate hike. a rate hike of 75 basis points. This clearly illustrates how market sentiment continues to shift and change as we get closer to July’s FOMC meeting.

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Wishing you as always, good trading,

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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