In the midst of "talking about talking," gold vs. the US dollar

The Federal Open Market Committee unanimously decided to keep the benchmark rate at 0-25 percent, where it has remained since the pandemic's darkest days last year. Its prediction for when rate rises would occur has been pushed up from 2024 to 2023. Two rate rises in 2023 are possible, according to committee members' individual forecasts. Following the greatest increase in consumer prices in almost a decade, the Fed upped its headline inflation outlook from 2.4 percent to 3.4 percent in March, but maintaining its belief that inflationary pressures are just temporary.

Reaction of the Market

The US dollar index increased by roughly 1% on the day, reaching as high as 2% since the meeting. Commodities fell practically everywhere, with the exception of oil, which held onto its recent gains. By the weekend, gold and copper had both fallen by over 5%, while silver had fallen by over 7%. Basic materials, which were down 5.6 percent, financials, which were down 5.8 percent, and metals and mining, which were down almost 9 percent, were the worst performing sectors. The Russell 2000 was down roughly 3.5 percent, while the Nasdaq hardly budged from its highs, indicating that value outperformed growth. This has led some analysts to speculate that the reflation trade, as well as the rotation from growth to value, may be coming to an end.

tapering 'talking about talking about'

Fed Chair Jerome Powell noted that June's meeting was more of a “talking about talking-about” gathering, and that “much additional improvement is still a ways off,” alluding to the economy. Bullard, a voting member in 2022, has indicated that tapering talks have begun, and he has switched from a neutral to a hawkish attitude.

Surges in the US Dollar

The dollar index rose on the day and closed the week at 92.3, with three straight higher daily closures from Wednesday forward. This is a higher high than the 91.3 high from early May, as well as a strong break over the 20-, 50-, and 200-day moving averages. It's also the index's most overbought level since late March, when it hit a high of 93.4. In fact, we're witnessing divergences between price levels and RSI on both the 4-hour and daily timeframes. In other words, the index is presently more overbought than it was in March, despite the fact that March's top was far higher than the current one.

The price of gold is falling.

Gold has been practically a carbon copy of the DXY. The price of gold fell below $1860, with three straight lower closures, to conclude the week at roughly $1760. The sell-off began on June 11 and accelerated on the last day of the FOMC meeting. Gold has fallen below the 20-, 50-, and 200-day moving averages, resulting in its lowest daily closing since April.

You may recall the double-bottom that gold formed in early and late March around the $1676 level. The current price action is the most oversold gold has been since the first of those two bottoms on March 8. Furthermore, the most recent sell-off has led to an RSI divergence between the second, March 30 bottom, and the current price action. In other words, gold is more oversold now than it was in late March, despite the price in March being significantly lower.