T-yields, Dollar Index dragging gold lower

At the time of writing, the precious metal trades around $1703. Earlier on Tuesday, gold future traded at $1712.80 with net decline of $9.80 or – 0.56%. Concurrently the dollar index was up 71 points or 0.65% and fixed at 110.22.

This could mean that there was fractional buying in gold today however, a strong dollar accounted for any fractional gains from buyers bidding gold higher and the totality of today’s $9.70 decline in gold.

Tuesday’s Dollar Index’s high of 110.55 is the highest level in the dollar index in the last 20 years. On a technical basis, there are no strong areas of resistance between 110 and 120 which is the highs the dollar ran to in 2001.

At some point, the dollar will be subject to correction but as long as the Fed continues its hawkish stance, US debt yields will rise. Higher yields will certainly continue to be highly supportive of dollar strength.

The dollar index’s strength represents the dollar as it relates to the basket of six currencies it is paired against. Within this foreign currency basket, certain ones carry more weight.

Because the vast majority of countries have been devaluing their fiat currency by creating excessive monetary supplies, the dollar has been depreciating less than the other currencies it is paired against.

As the US yield of debt instruments such as 30-year Treasury Bonds or 10-year Treasury Notes rises a byproduct is that it moves the dollar index higher. That is exactly what we have been seeing as the Federal Reserve continues to raise rates aggressively.