Being a gold bull right now isn't easy because there's a good chance that the $1,343 high set back in February was a top. It's around the same level that gold peaked in early 2018 and mid-2016. Gold had a strong run between October 2018 and February 2019 but prices are 5 percent lower since then. The strong U.S. dollar played a big role, but that's not the only reason why gold prices are falling and could fall further.

The U.S. economy isn't doing great but that has not stopped the dollar from gaining value. The market's appetite for U.S. dollars is driven by a few factors -- the performance of the economy, the performance of stocks, yields, the market's risk tolerance and most importantly, growth abroad.

While GDP growth peaked in 2018 and the Federal Reserve stopped raising interest rates in response to the slowdown in the economy, stocks hit six-month highs in April, with the Nasdaq and S&P 500 reaching all-time highs. This fostered an appetite for risk that is encouraged by low volatility. If stocks continue to rise, volatility will remain low and investors will have fewer reasons to own gold. While U.S. interest rates are falling, the "yield spread" moved in favor of the greenback because the economic outlook for the rest of the world is even worse.

Positive Signs for the Dollar

Central bankers in all corners of the world have been vocal about "global growth" and "trade" being concerns and the Fed is no exception. Slower global growth will suppress U.S. growth, but the bigger problems will be in other countries which is why on a relative basis, the U.S. economy and Fed policy still makes the greenback more attractive. The most recent retail sales report suggests that the slowdown that we saw at the start of the year was temporary. When the U.S. government shutdown ended, consumers returned with a vengeance.

With jobless claims at 50-year lows, the labor market is tight enough for spending to remain positive. Inflation eased at the beginning of the year, but the more than 20 percent increase in gasoline prices since February will start to drive the consumer price index higher. All of these factors should keep the dollar strong for the time being and undermine the chance of a recovery in gold.

What Could Make Equities Turn?

Gold typically bounces when volatility returns, and that should coincide with a peak in stocks. A sharp selloff in equities would be a tipping point that triggers widespread profit-taking and broad-based risk aversion -- similar to what we saw in December and January. The only question is what could cause the turn in sentiment.

We know that central bankers are worried about global growth but the moves in equities fail to recognize these concerns. Stocks could peak if U.S.-China trade talks turn south or the EU-U.S. trade war heats up but there's a lot of chatter about a signing summit between President Trump and President Xi in May. An intensification of the EU-U.S. trade war would be more realistic. Earnings could also tip stocks lower but so far they haven't been terrible. If data stabilizes enough for central banks to reconsider tightening, stocks could fall on rate-hike talk but that won't happen for a while.

Oftentimes stocks correct for no reason at all. They sell off sharply one day because of one small factor and the fear of further losses drives them even lower triggering stops that accelerate the slide. If this happens the dollar will fall versus the Japanese yen but rise against all other major currencies so the greenback may not be the best guide for gold. I'll have my eye on volatility.

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(This article is sponsored and produced by CME Group, which is solely responsible for its content.)