Gold Faces New Challenges as the Dollar Prevents a Return to $1,800

Today, gold bulls seldom see more than two weeks of continuous increases.

On Wednesday, it looked that longs in the yellow metal had exhausted their two-week pass following the dollar's surge on fresh anticipation of greater U.S. rate hikes, which halted gold's recent rally and short return to $1,800.

The gold futures contract for December on the New York Comex fell by $13.30, or 0.7%, to $1,776.40 per ounce. The previous day, it touched a near-monthly peak of $1,805.

The spot price of bullion, which some traders monitor more closely than futures, remained at $1,765 after dipping slightly below $1,755.

The Dollar Index, which measures the dollar to six major currencies led by the euro, rebounded from Tuesday's three-week low of 104.9 to hit a one-week high of about 106.7.

Regional heads of the Federal Reserve, such as James Bullard of St. Louis, Mary Daly of San Francisco, and Loretta Mester of Cleveland, have declared in recent days that the central bank will continue to hike interest rates to battle inflation that remains stubbornly above four-decade highs. Consequently, the dollar recovered its strength.

The Federal Reserve is perplexed as to why inflation, as measured by the Consumer Price Index, has not declined from four-decade highs, expanding at a rate of 9.1 percent in the year leading up to June, despite four rate hikes since March that have raised rates from near zero to as high as 2.5 percent.

According to San Francisco Fed President Daly, the economy is not at risk of another 'Great Recession,' and the United States can withstand a third consecutive 75-basis-point rate increase if necessary.

"A 50 basis point increase in September would be appropriate," Daly stated in a live-streamed lecture regarding the anticipated size of the next Fed rate hike. "However, if inflation continues to rise uncontrolled, an increase of 75 basis points could be more appropriate. I do not expect another Great Depression to occur."

Some observers consider the United States as being in a recession after two straight quarters of negative GDP growth in the first half of this year. The so-called Great Recession started in 2008/09, when a market crash triggered a global financial crisis.

Jerome Powell, chairman of the Federal Reserve, acknowledged last week that the central bank cannot predict whether it would sustain the dramatic rate hikes it has conducted since March to battle inflation. This resulted in a gold price movement toward $1,800.

Since August 2020, when it reached record highs above $2,100, gold has failed to live up to its reputation as a hedge against inflation for the most of the previous two years. The dollar's ascension, which is up 11 percent this year and 6 percent in 2021, has contributed.