Following speculation that fundamental data in the United States was too shaky for the Federal Reserve to consider raising interest rates further in the upcoming meetings, the dollar was sent tumbling as hawkishness quickly turned to dovishness.Poor data related to GDP and employment have further reduced the appeal from certain investors’ perspectives, adding to recent momentum higher in gold.However, a burst of optimism since the weekend reopening has sent the dollar higher as the Yen finally depreciates modestly and fundamental announcements for the US remain sparse after the nonfarm payroll figure released last Friday.Although gold prices had risen to the highest level in over a year as of last week, the momentum has shifted rapidly, snuffing out the rally just as quickly as it began.

Dollar Power

Although there has been little in the way of positive macroeconomic developments over the last few sessions, with relatively few announcements set to be delivered this week, the dollar may continue to gain on the back of less negativity.One area that is fueling sustained upside was the earlier release of the JOLTs job openings print of 5.757 open jobs for the month of March, a favorite metric for the US Federal Reserve in its decision-making process.Besides printing above forecasts of 5.431 million jobs, the prior figure was revised higher to 5.608 million a factor that could fuel further gains throughout the session.Nevertheless, even with the temporary respite from a slew of negative economic readings, the probability of a policy adjustment in the coming months remains exceeding low, with Fed Funds futures only pricing in a 7.50% probability of rates rising an additional 25 basis points in June.

Gold in general has been highly sensitive to developments in rate policy in the United States and also inflation.However, any further pickup in inflation will prove a net negative for gold in dollar-denominated terms despite the historical application of precious metals as an inflationary hedge.Should inflation rise from current levels, it could compel the Federal Reserve to raise rates sooner to tame inflationary pressures, thereby fueling further gains in the US dollar on the back of a stronger probability of a prolonged tightening cycle.At this point, gold is much more a function of forward looking uncertainty and lack of confidence in central banking than an effective hedge against inflation.Therefore the dollar should be the central focus of any future gold trading, however, there are several factors that are contributing to recent weakness in the currency.