Gold has been out of luck for the majority of the year so far. The year to date (YTD) performance of the precious metal sits at -0.46 percent and this is despite the fact that the Federal Reserve has adopted a dovish stance towards their monetary policy and there are serious concerns over the ongoing Trade War between the United States and China. In fact, the mainstream Chinese media has adopted a very aggressive tone against the U.S. with the Chinese media sending a clear warning that the dispute is going to hurt U.S. companies the most because of their exposure in China. According to the ‘Treaty damage to the U.S. hinterland‘ a 25% tariff increase on Chinese companies is going to impact 1 million U.S. jobs and will also anchor the financial market turmoil further.
However, despite this major uncertainty there is no appetite among trader for holding the safe haven- gold. The chart below shows that the SPDR Gold ETF has experienced its largest outflow since 2016, with an outflow exceeding $926 million in the first week of May alone. Having said this, the bleeding didn’t get much worse and this is because as of the last week, the inflow was $120 million which is better than the previous week’s outflow number of $303 million.
The relation of the Dollar Index to the gold price is always interesting, one goes up and the other goes down, mostly. The chart below shows that the gold price has lost value due to the strength in the Dollar Index and this trend is still robust.
The question which comes to mind is: why is the Dollar Index still strong if the Fed isn’t going to change its monetary policy?
To answer the above question, one needs to look at the US economic data and see how it has performed against the forecast. Remember, the Fed is usually behind the curve and market participants have it right most of the time. Therefore, the Bloomberg US Economic Surprise Index is helpful in this situation. In the chart below, you can see that the economic data has started to perform extremely well since March. Although, the current reading is -0.18, still in the negative territory, but the improvement in this index has been extremely strong. This is because back in March the index was well below the -0.50 level. Also, the correlation between the gold price and the Economic Surprise Index since October 2018 has been negative – one goes up and the other moves lower. 
Today’s FOMC minutes will be of particular importance because traders will be looking at two things: firstly, if the Fed is going to acknowledge that the trade war is a catastrophe. And secondly, the economic slowdown in global growth. If the minutes do not show any concerns about these two important issues, I think the path of the least resistance would remain skewed to the upside.
Overall, I think the Dollar Index is going to continue its move to the upside. We will see only see it losing steam if the Fed starts to pay attention to what Donald Trump wants, because one thing is for certain, the economic data isn’t falling off the cliff and this means that the upside for the gold price may be limited.
