The decline in the value of the dollar did little to boost gold prices. They were probably tempered by gold selling off significantly, keeping the precious yellow metal just above $1700 an ounce. On Thursday and Friday of last week gold prices fell below $1700 on an intraday basis, but on both occasions they closed just above this key and important psychological price level.

Today the dollar showed gradual price gains. At 5:10 p.m. EDT, the dollar index is currently holding steady at 106.925 after factoring in today’s 0.35% gain. At the same time, gold futures lost $16.40, or 0.96%. This clearly shows that today’s dollar strength has increased the selling pressure on gold, but only by a percentage of gold’s overall decline today.

Spot gold is currently firming at $1696.40 after taking into account today’s drop of $16.40. On closer inspection, dollar strength led to a $5.50 drop, with the remaining $10.90 drop directly attributable to selling pressure. This according to KGX (Kitco Gold Index).

The dollar’s recent strength and weakness in gold can be directly attributed to the aggressive monetary policy of the Federal Reserve, which has raised interest rates at each successive FOMC meeting since March of this year. Gold traded at its highest level this year in March trading at $2078. This marks the first rate hike by the US Federal Reserve, which also took place in March. Over the past four months, gold has fallen by $383, losing nearly 18 ½% in value.

Exactly one week from today, the Federal Reserve will wrap up its July FOMC meeting and will almost certainly announce its fourth straight rate hike this year. The Fed is widely expected to raise interest rates again by 75 basis points. However, they could raise rates by 100 basis points, although that is widely believed to be unlikely according to CME’s FedWatch tool. Currently, this rate hike indicator predicts a 67.9% chance the Fed will raise rates by 75 basis points next week and a 32.1% chance it will raise rates by 100 basis points.

This rate hike indicator has had dramatic changes in its forecasts. A week ago, on July 13, the Fed’s watchdog forecast there was an 80.3% chance of a 100% rate hike and a 19.7% chance of a 75 basis point rate hike. This clearly shows how market sentiment continues to shift and change as we approach the July FOMC meeting.

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