On Mar. 7, 2021 gold bottomed at around the $1680 level. At this time, the US dollar index was sitting under the 92 level, and the 10-year Treasury note was yielding 1.56%.
On Apr. 29, 2021, gold tested this $1680 level again and bounced off it, forming a double bottom on the charts. This time, the DXY was just under 93, and the 10-year Treasury note yielded 1.64%.
What is significant in all of this is that today, the DXY has been hovering around the 96 levels, with the 10-year yields above 1.7%. Way above the levels where gold bottomed.
Given these two metrics have been the lazy analysts' choice for "scoring" the gold price, we can conclude that gold is an awful lot stronger today than it was less than a year ago.
While the dollar is unquestionably one of the top factors in determining gold price, researching interest rates and gold will prove no absolute correlation between them. History has proven that shortly after rate hikes, gold and silver have gone on a tear higher.
Interest rate hikes tend to put stock market investments as a less attractive option. Particularly in high inflation environments where returns yield less in real terms. Money then tends to rotate out of stocks and into hot sectors, as we have seen in commodities.
When you consider the high inflation period in the 1970's gold didn't move straight away. It took a lot of time for traders and investors to accept the notion that inflation doesn't tend to go away overnight.
Powell made a statement in his testimony yesterday that selling off assets to loosen the debt on The Fed's balance sheet may have to take a back step, yet in the next breath, they will use all the tools they have.
The short-term outlook is always unpredictable while the Fed plays around with monetary policy. We are in unprecedented times, but given the markets have moved on every Fed statement, gold's price north of $1800/oz would suggest that the alleged rate hikes in 2022 and tapering completing in March have been priced in.
Should The Fed stay true to form and not follow through on anything they ever say they will do, we should expect an environment where gold and silver have years to run higher.
The dollar index has hovered around the 96 area for some time now and is at the lower end of the congestion area it has formed. It will be interesting to see how it will react against the CPI figure release today, estimated to be 7%.
The dollar index has priced these hikes in for a long time now, so it is starting to look top-heavy. A surge lower wouldn't be that unexpected.