More selling in store for gold price? Markets look at Yellen’s US dollar

Editor’s note: with so much market volatility, stay up to date with the daily news! Get caught up soon with our quick summary of today’s must-read news and expert opinions. Sign in here!

(Kitco News) After a sellout of $ 1,800 per ounce, gold is higher on a bargain hunt with prices higher than $ 1,830, despite a higher US dollar on Monday.

The increase in market volatility comes as markets closed on Monday in recognition of Martin Luther King Jr. Day.

With the U.S. dollar controlling the price movements of gold, this week the focus is on the testimony of the designated new U.S. Treasury Secretary Janet Yellen, which is scheduled for Tuesday. According to analysts, Yellen’s comments on the future of US dollar policy are ongoing.

‘The dollar gradually worked higher over the weekend and part of this may have to do with the fact that Janet Yellen, in anticipation of the treasury secretary, will testify at Capitol Hill tomorrow. She is expected to say that she does not prefer a deliberate weakening of the dollar, but rather appreciates the currency through movements in the free market. It is in principle dollar-supporting because it is a policy change, said StoneX’s head of market analysis for EMEA and Asia. Rhona O’Connell region.

The impact on gold will be determined by how much and in what direction the US dollar moves in response, said Carsten Fritsch, analyst at Commerzbank.

“The kind of oral intervention that weakens the USD, which was a common feature of Trump’s presidency, will probably now be a thing of the past,” Fritsch said Monday.

The strength of the US dollar weighs gold, which tumbles to lows over the weekend in early December at $ 1800 per ounce.

On Monday, gold recovered somewhat, with spot gold last trading at $ 1,388.20 an ounce, up 0.55% on the day. Meanwhile, the US dollar index has risen further and is trading near the highest level since December 21 and on course to test the 91 area.

“Gold price movements in the recent past have been a major function of the dollar’s movements, and the price in euro terms has moved more or less horizontally over the past week,” O’Connell said. “The decline towards $ 1,800 was largely during US hours last Friday, and there was a further sharp decline this morning at the beginning of the Asian hours, before a bargain hunt recovered almost as quickly.”

Friday’s movements were likely strengthened due to the closure of U.S. markets on Monday, O’Connell noted.

Despite recovering Monday, gold is showing some signs of weakness, Fritsch pointed out.

“Friday’s price cut meant gold also closed its second week of trading in the new year. Higher US yields and a firmer US dollar continue to weigh on its price,” he said. “As expected, the price drop of gold last week was largely driven by speculation. According to CFTC statistics, the net long positions of speculative financial investors in the week to January 12 were cut by a third to 78,200 contracts, the lowest level since May 2019. “

Pepperstone’s head of research, Chris Weston, raised a red flag to keep an eye on in the short term.

“On Friday, we reduced the real US Treasury yields by 4 bp, but still the dollar rose, and gold came down – it’s a red flag for me. ‘The way gold is traded today makes me quite worried that the market feels it has more to do with part of the reflection commitment,’ Weston said on Monday. “I see this decline as ‘bad’ real returns – where both inflation expectations and nominal treasury yields move lower together, with nominal treasury yields falling faster than inflation expectations. Given how foamy and too many markets were, this may be the beginning of a slight relaxation, with the USD as the core of the move. ‘

Another important event to watch this week is President-elect Joe Biden’s inauguration on Wednesday. “Security in Washington DC and many of the state capitals has been tightened due to concerns about violence,” said BBH’s global head of currency strategy, Win Thin.

Markets are also paying close attention to the Bank of Canada meeting on Wednesday, as well as the European Central Bank, Norges Bank and the Bank of Japan meetings on Thursday.