While the strength or weakness of the dollar is inherently always a component of the net change in the price of gold, it has been the predominant driver of gold price declines recently as the dollar hit its highest since 2002. Last week, the dollar traded at a high of 109, well above the double top that formed around 104. 104 was the highest trading dollar index since mid-2002.
The dollar has appreciated significantly since April this year, when it traded just below 90. From April's low to last week's high of 109, the index is up 19% compared to the basket of currencies against which the index is measured.
On Thursday and Friday last week, gold prices briefly dipped below $1,700.
The recent decline in gold prices is due to the strengthening of the dollar, and the recent strengthening of the dollar is a direct result of higher yields on US debt instruments, which makes this group of assets more attractive. The higher yield is based on recent actions by the Federal Reserve, which raised rates at the last three FOMC meetings.
The Fed raised rates by 25 basis points in March, 50 bps in May, and 75 bps in June.
After the release of the June CPI report last week, market participants began to consider the possibility that the next rate hike during this month's FOMC meeting, which ends on July 27, could be 100 basis points.
According to the CME FedWatch tool, there is a 69.1% chance that the Fed will raise rates by 75 bps and a 30.9% chance by 100 bps.