Wednesday 4 May sees the next FOMC statement, with a fully priced in 50 basis point rate hike. Gold is currently at weekly lows with the dollar, and United States 10-Year yields at multi-year highs.
The dollar index has formed a multi-year triple top on the charts around the 103.750 level. It has topped at this level in recent days and began a path lower. Rather interestingly, on both previous occasions (2017 and 2020), after hitting this high, the index went south all the way down to 88 and 89, respectively. Could this be on the cards again?
Don’t forget, as mentioned on many an occasion, inflation is directly caused by governments debasing their currencies via QE. While the dollar index is climbing, it is only a proxy against other currencies that are failing faster than the US dollar. Make no mistake - these 8% figures are hurting the greenback.
That said, we are in an environment where charts are proving illogical. Gold prices, given the current climate, seem cheap. Silver is cheap as well, such is the unhinged price suppression.
The GDP figures released last week showed negative growth and stock indexes rally. Were they expecting this to result in a Fed pivot and more QE? They have since sold off, so perhaps knee-jerk.
What is not up for debate is that Gold, more often than not, has historically bottomed shortly after rate hikes as money rotates out of risk on and into risk-off. History also shows that the dollar tends to sell off on a buy the rumor, sell the fact style play.
This is precisely how we see this playing out tomorrow when the FOMC meeting and minutes are released. Expect higher than usual volatility for a day or so, then the patterns to play out. Gold higher, Dollar lower.