The dollar index hits a new high, and gold $XAU may not be done correcting yet🤨

DXY has surged to 103.4, its highest level in nearly a year, while gold is taking a hit. It has fallen more than 4% this week, with prices now back below $3,900.

The key driver behind this round of dollar strength is still the Fed:

Strong jobs data, combined with inflationary pressures, has led markets to once again bet on a rate hike in December. Treasury yields have risen accordingly, putting pressure on gold from both the dollar and interest rates.

Looking at the chart, after gold broke below 4,000, its rebounds consistently lacked staying power. On Friday, it briefly bounced above 3,920 on the back of PPI data, but was quickly knocked back down.

That’s quite interesting: even inflation data that came in slightly below expectations failed to spark a meaningful rebound, suggesting buying demand is indeed weak right now.

I’m still bearish, with support around 3,850 the key level to watch in the short term.

As long as the dollar remains strong and gold continues to struggle to reclaim 4,000, every rebound could face considerable selling pressure.

What’s truly worth watching next is when the dollar index peaks and whether expectations for Fed rate hikes start to ease.