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January 4, 2022

How To Trade Gold With A Strong Dollar Right Now

Frank Cabibi

It should come to no shock as to why the USD is getting stronger after the Fed's recent statements. The fact that we are seeing a massive shift of money into the dollar helps us determine the overall direction of the safe-haven This can also cause a reverberation throughout other markets as well, such as the gold bullion. So, before you start your 2022 off, we suggest taking a look on how to trade gold right now amidst a powerful greenback.

Higher Treasury Yields

US 10-year bond yields spiked to 1.6710% before resting at the 1.6500s%. Yields are up .035% on the day as of writing this. If we continue to see growth like this, investors might find more security in the bond market. And that could lead to less money in stocks and gold. The Fed will meet again in a few months to talk about future monetary policy which has been a main driver in bond yields in recent months as higher interest rates means stronger dollar.

The 10-year treasury is still under under the highs of 1.74% that were reached back in March of 2021.

https://www.cnbc.com/quotes/US10Y

Higher Interest Rates

It has been 3 years since an interest rate hike, and there is an expectation of one to be announced in the Fed meeting in March. If we do see the three hikes Powell promised in 2022, we could be in for a year of bearish activity in the inflation-hedger, gold.

How To Trade Gold

It seems that all of the fundamental reasons that should have driven gold higher are now fading. The combination of higher interest rates, stronger treasuries, and the end of Fed tapering will all contribute to the better performance of the dollar. This will directly affect XAUUSD in a negative way and cause lack-luster performance throughout the year. Additionally, a more hawkish approach in monetary policy will only hurt gold even more.

A possible head and shoulders pattern could be forming on the 1D as well as being caught up in a wedge pattern. Should price fail to move above resistance around $1825, head and shoulders will form suggesting a bearish move. Some analysts expect lower lows to the $1600s during the year which seems likely if the metal breaks under its wedge pattern.

To read more content on gold, check out our other articles here.

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