gold futures (GC)

Gold (GC) Futures: Bullion Losing Against the Higher Yielding Dollar

  • The inflation hedge is no match for rising interest rates in the US.
  • The dollar rally might continue for quite some time.
  • Bears are gathering momentum to potentially break below 1700.

Today’s gold (GC )futures outlook is bearish as investors favor the more profitable dollar. In times of crisis and significantly rising inflation, the yellow metal is the best hedge to protect your assets against losing value. However, gold tends to lose this edge compared to the US dollar. As interest rates rise, it becomes more profitable to hold the US dollar as gold has no yield.

This decline might continue after hot US inflation raised investor bets on a 100 basis point rate hike at the next Fed meeting. As long as interest rates in the US keep rising, gold might keep falling.

“The stronger dollar is pushing gold lower. After the consumer inflation data, traders have increased their expectations from a 75 bps rate hike to a 100 bps rate hike, hurting gold,” said Philip Streible, chief market strategist at Blue Line Futures in Chicago.

“Gold will unlikely see any upside unless inflation deteriorates enough to stop interest rate hikes or if other central banks start to be as aggressive as the Fed, which could weaken the dollar,” Streible added.

“A market feature for some time has been the appreciation of the dollar… History suggests this phenomenon can remain in place for quite some time, only making the greenback stronger,” said Jim Wyckoff, senior analyst at Kitco Metals.

Gold futures are on the brink of breaking below 1700. With all that we know now, this breakout might come sooner rather than later.

Gold (GC) futures technical outlook: 

Gold (GC) futures 4-hour chart
Gold (GC) futures 4-hour chart

Looking at the 4-hour chart, we see choppy price movement before a potential downside price move to 1700.1. The RSI shows a bullish divergence but still favors bearish momentum as it trades below 50. 

The price is currently sitting on a support level around 1702.2 (psychological level), which may have paused the bearish move yesterday. If it breaks below this level, we could see the return of stronger bearish momentum. However, if this level holds support, we might get a deeper pullback due to the bears’ weakness around the resistance level at 1721.9 – a previous support level formed on July 13. We could also see price experience resistance from the 30-SMA.