Gold is still putting up a fight as the Fed looks stuck

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Gold last traded at $1,868 an ounce. Silver at $22.58 an ounce.

NEWS SUMMARY: Precious metal prices stabilized Tuesday on bargain-hunting and a weaker dollar. U.S. stocks opened modestly higher after the major averages staged a roller coaster start to the month.

KITCO--"Gold prices dropped below $1,900 an ounce, falling roughly 5% after it was unable to break above $2,000 an ounce. However, there is still some fight left in the gold bulls as the market looks to end the week back above $1,900.

Gold was hit with some significant selling pressure as the U.S. dollar index has pushed to nearly a 20-year high. The green back has seen some serious bullish momentum as traders and investors prepare for the Federal Reserve's monetary policy meeting this week.

The U.S. central bank is setting itself up to aggressively raise interest rates with markets looking for three 50-basis point moves at the next three meetings.

At the same time markets are expecting interest rates to end the year above 3%. However, it looks like some investors are realizing that maybe market expectations have gotten a little ahead of themselves.

Yes, the Federal Reserve has to deal with the growing inflation threat as consumer prices rise to their highest level in more than 40 years; however, it is looking less likely that the U.S. central bank can engineer a soft land as recession and stagflation fears start to grow.

A major shock this week came last Thursday with U.S. first-quarter GDP showed that the economy contracted by 1.4%; economists note that a lot of the decline in economic activity was due to trade imbalances. Although the consumer remains well supported, cracks are starting to show in the foundation.

The question is how long can the consumer last as inflation continues to rise....Unfortunately, higher interest rates will not impact food and energy costs, these sectors continue to be impacted by Russia's ongoing war with Ukraine. So there is not much the Fed can do to address supply-side issues."