Fractional Gains in Gold Today Were Wiped Out by Dollar Strength

Gold and US Dollar Price Action Today

Both spot gold and gold futures closed lower on the day. However, in both cases, there was fractional buying bidding the precious yellow metal higher as well as dollar strength taking away all of those gains. Spot gold as seen through the Kitco gold index at 3:56 PM EDT, was fixed at $1819.60. Traders bid gold prices higher by $6.40 or 0.35%, and dollar strength resulted in a price decline of $9.50 resulting in today’s decline of $3.10 in spot gold.

Gold futures basis the most active August 2022 Comex contract is currently down $2.90 or 0.16%. Concurrently the dollar index is up over half a percent (+0.58%) and fixed at 104.255. In both cases, all of the gains resulting from normal trading were taken away by a strong U.S. dollar, resulting in lower pricing for gold in both the spot and futures markets.

Key Fundamentals

Gold prices have been caught between two opposite and opposing forces; rising interest rates and rising inflation. Higher inflation will typically create bullish market sentiment for gold while higher interest rates will typically create bearish sentiment for gold. These two opposite forces have contained gold prices recently as the Federal Reserve has been fighting inflation by raising interest rates and recent data suggests that inflation has not peaked based on the May CPI inflation data.

The Federal Reserve has now raised interest rates during the last three FOMC meetings. The first-rate hike of 25 basis points occurred in March, followed by a 50 basis point rate hike in May. This month the Federal Reserve announced at the end of the June FOMC meeting that they raise interest rates by 75 basis points which is the most aggressive rate hike since 1994.

The most recent expectations by the Federal Reserve for the fed funds benchmark rate is 3.8% to 3.4% by the end of the year which is an upward revision of 1.5% to 2% percentage points from the March estimate.

The Federal Reserve also lowered its expectations for economic growth in 2022. Fed members cut their outlook for 2022 economic growth, now anticipating a 1.7% gain in GDP which is down from their March assessment of 2.8%.

Many analysts and economists believe that the current course of the Federal Reserve will most certainly drive the economy in the United States into a recession. The question becomes, “when and how deep?” MarketWatch reported that Naeem Aslam, chief market analyst at AvaTrade said, “Traders know that it is only a matter of time before the economic data officially confirms that the U.S. economy has fallen into a recession and that headline would spur more interest in a risk-off asset.”

Gold Price Forecast

Slower economic growth coupled with preeminent inflation will continue to be highly supportive of gold pricing. However, the upcoming rate hikes will continue to curtail any prolonged strong upside move in gold.

Bob Haberkorn, Senior Market Strategist summed up the short-term outlook for gold quite eloquently when he said, “Gold is stuck in a range and is going to continue to be in a range in the near term. The market will only break out into a direction after it gets more economic data and information from the Federal Reserve.”

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Wishing you as always good trading,

Gary S. Wagner