Although gold is trading fractionally higher today, by no means can we say that a rally has begun or that this is the beginning of a potential pivot and key reversal from bearish to bullish. The fate of gold pricing remains intrinsically tied to dollar strength or weakness. In the current economic scenario, it is dollar strength that is overwhelmingly moving gold to lower pricing.

Powell’s Federal Reserve has been faced with one of the most difficult periods in time that began with a global pandemic which led to a global economic shutdown. This led to an extreme and some say incorrectly allocated government stimulus.

The Federal Reserve has been faced with one of the most difficult periods in time that began with a global pandemic which led to a global economic shutdown. This led to an extreme and some say excessive government stimulus. The result; rising inflation and a critical mistake by the Federal Reserve that led our economy to a potential unresolvable crisis.

There is an intrinsic negative correlation between the value of gold and the value of the U.S. dollar. This negative correlation is simply based on the fact that gold’s pricing is paired against the dollar.  Changes in the price of gold are based on a combination of two factors; dollar strength or weakness and market participants actively buying or selling the precious yellow metal.

The Federal Reserve concluded the September FOMC meeting and as expected announced another rate hike of the “Fed funds rate”, the rate at which commercial banks borrow and lend their excess reserves to each other overnight by 75 basis points. Beginning in March the Federal Reserve has raised rates at the last five consecutive FOMC meetings.

The Federal Reserve will conclude its September FOMC meeting and release a written statement at 2 PM EDT tomorrow. This will be followed by Chairman Powell’s press conference a half-hour later. It is widely anticipated that the Federal Reserve will raise the “Fed funds rate” by 75 basis points.

Gold remains relatively muted as market participants await the start of the Federal Open Market Committee meeting tomorrow. As of 5 PM EDT gold futures basis, the most active December contract is currently trading at $1685 with a net gain of $1.50 today. The December contract opened at $1685.40, traded to a low of $1667.60 and a high of $1688.80.

Yesterday gold closed below the support level of $1680 closing at $1674. This was the first instance of a close below $1680 since gold broke above that price point in April 2020. The yellow rectangle on the left-hand side of “chart 1” illustrates the break above that level. It is marked with a large letter” R” on the weekly gold chart below.

Unless you’ve been living under your computer screen you are well aware of recent price action pressuring gold dramatically lower. Over the last six months since gold hit its highest value this year gold has been devalued by $400 per ounce or 19.45%.

Today the government reported a fractional decline in headline inflation through the release of the August CPI inflation report. The August 2022 CPI report revealed that inflation was both stickier and larger than expected, with the actual numbers exceeding the forecasts by major economists and analysts.