Rising Dollar And Yields Weighing On Gold
The gold market is a bit softer today as the bears look to follow through on recent selling. A stronger dollar and rising yields are the primary culprits today behind gold’s weakness and may continue to limit the metal’s upside in the weeks ahead. Another hot reading on inflation today has done little if anything to help the bulls.
The Producer Price Index was released today and showed a rise of 10.8% year-over-year. The index showed a .5% rise from April figures and the readings were basically in line with market expectations. Markets showed little reaction to the data, therefore, as inflation remains a hot topic. Despite the muted reaction to the PPI data, inflation is in fact running very hot across the globe and may be a bullish factor for gold and metals over the long-term.
Although the PPI data is important, the main area of focus for this week is the FOMC decision due for release tomorrow afternoon. The Fed began their policy meeting Tuesday morning and will wrap it up with a decision on policy Wednesday afternoon. It is widely expected that the Fed will raise the Fed Funds Rate by 50-basis points tomorrow. The Fed is also likely to do so at its next meeting as well, and possibly even beyond that. Some analysts believe the Fed could even hike rates by 75-points this week. Fed Chairman Jerome Powell is set to hold a press conference after the decision and investors are likely to pay close attention. Powell could provide clues about the Fed’s outlook and its plans going forward.
Outside markets are not doing much to help gold today. Crude oil is higher, trading at over $122 per barrel. The Dollar Index is also stronger on the day, trading not far from the recent 20-year highs touched earlier. Yields for the benchmark Ten-Year Note are at 3.3%, not far off from recent 14-year highs reached at 3.371%.
The bears remain in control of gold on the daily chart. The bears will look to produce a close below technical support at $1800. A close below this level could spell trouble for the market and a fresh wave of sellers could potentially enter if the market closes below this level. The bulls will look to first take out the week’s highs around $1882 and then produce a close above the $1900 level.
The Fed meeting and policy decision Wednesday has the potential to move markets, and move them dramatically. Should the Fed take an even more hawkish tone, it could send stocks sharply lower while also weighing on gold. Should the Fed sound more dovish, however, both stocks and gold could potentially rally. At risk also is upside for the Dollar Index which has been moving higher on the notion of higher rates. A weaker dollar could put the gold bulls back in the driver’s seat and could send the market back towards resistance.