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The gold bears are now pressing their positions, taking prices below the $1700 level in earlier action Thursday. Although the yellow metal has since bounced back above $1700, the bears appear to be in firm control of the market at this point. That could mean that a capitulation type of event may be in store sooner rather than later, and gold may only begin to find more solid footing once it does.

The market is being pounded by several bearish elements. A rising dollar, higher yields and worries over a recession to name a few. Declining crude oil prices are also a factor for gold, which hit an 11-month low today. The release of the Producer Price Index earlier today did not do anything for the gold bulls. In fact, the hotter than expected PPI figure (which showed a rise of 11% year-over-year) has seemingly only served to boost interest rate expectations. Markets are now pricing in a good chance of a full, 100-point rate hike at the next FOMC meeting on July 27th.

Should the Fed elect to raise rates even more aggressively and go for a 100-point hike, it could potentially dampen economic activity further and possibly increase the risk of a recession hitting. Some have argued that the U.S. is already in recession, although that remains unclear. The Fed has suggested that it could raise rates quite a bit further without putting the economy into recession, and time will tell whether the central bank is accurate or not.

The notion of an aggressive Fed has likely been a major factor for dollar strength in recent months. The dollar hit a fresh 20-year high today, as rate expectations and differentials drive buying. The so-called “carry trade” is in full effect right now, whereby investors in other nations dump their currencies to invest in dollars. This trade may continue for some time. As it does, it could take the dollar significantly higher from already-elevated levels. This could mean that dollar strength may continue to weigh on the greenback for some time to come. It does also set the stage, however, for a large scale dollar reversal should the Fed take a more moderate approach or decide to reverse course at some point.

The 2/10 yr yield curve remains inverted, and is the most inverted it has been in over two decades. This inversion may be a strong indicator of a recession coming sometime in the months ahead. Investors will pay close attention to the yield curve and may become increasingly agitated by any further inversion. The yield curve inversion is one possible clue about impending recession. The pullback in broad commodity prices may be another. Whatever the case may be, investors are now on the lookout for any further signs of recession and may adjust their portfolios accordingly. Although this may currently be a bearish factor for gold, it could also reverse in the months ahead and drive investors into gold and perceived safe haven asset classes.