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(Kitco News) After a drop of $ 1,800 an ounce, gold is on the rise in the search for bargains, with prices above $ 1,830, despite a higher US dollar on Monday.
The increase in market volatility came with the closing of markets on Monday, in recognition of Martin Luther King Jr.
With the US dollar in control of gold price movements, the focus of this week is on the testimony of the new US Treasury secretary, Janet Yellen, scheduled for Tuesday. Markets are focusing on Yellen’s comments on the future of US dollar policy, according to analysts.
“The dollar has been gradually working upwards over the weekend and part of that may be due to the fact that Janet Yellen, the Treasury’s waiting secretary, is due to testify on Capitol Hill tomorrow. She must say that yes they do not favor a deliberate weakening of the dollar. , preferring instead to see the currency appreciated by free market movements. This, in principle, is favorable to the dollar as it is a policy change, said StoneX head of market analysis for EMEA and Asia Rhona O’Connell regions.
The impact on gold will be determined by how much and in which direction the US dollar moves in response, said Commerzbank analyst Carsten Fritsch.
“The kind of verbal intervention designed to weaken the dollar, which was a common feature of the Trump presidency, is now likely to be a thing of the past,” Fritsch said on Monday.
The strength of the US dollar has weighed on gold, which fell to lows in early December over the weekend, reaching $ 1,800 an ounce.
On Monday, gold rebounded somewhat, with spot gold being traded for the last time at $ 1,838.20 an ounce, up 0.55% on the day. In the meantime, the US dollar index continued to rise, trading near the highest level since December 21 and on its way to test the 91 area.
“Gold price movements in the recent past have largely been a function of dollar movements, with the euro price moving more or less horizontally in the past week,” said O’Connell. “The drop to $ 1,800 came largely during US time last Friday and then there was a sharp new sale early in Asian time this morning, before an almost equally rapid recovery in bargain hunting.”
Friday’s moves were probably amplified due to the closing of US markets on Monday, noted O’Connell.
Despite the recovery on Monday, gold is showing some signs of weakness, Fritsch pointed out.
“Friday’s drop in prices meant that gold also closed the second week of trading in the new year down. Higher yields on U.S. bonds and a firmer dollar continue to weigh on its price,” he said. “As expected, the fall in the price of gold last week was largely driven by speculation. According to CFTC statistics, the net long positions held by speculative financial investors were reduced by one third to 78,200 contracts in the week up to 12 January, its lowest level since May 2019. “
Pepperstone research chief Chris Weston has highlighted a red flag to keep an eye on the short term.
“On Friday, we saw real US Treasury yields lower by 4 basis points, but still the USD went up and gold fell – that’s a red flag for me. In fact, the way gold is being traded today makes me very concerned that the market feels that part of the development of reflective bets has more to do, “said Weston on Monday. “I see this drop as a fall in ‘bad’ real yields – where both inflation expectations and nominal Treasury yields fall together, with nominal Treasury yields falling faster than inflation expectations. Given how frothy and overloaded markets have been, this may be the beginning of a slight slowdown, with the US dollar at the center of the movement. “
![Gold chart 24 hours live [Kitco Inc.]](https://i0.wp.com/news.google.com/images/live/gold.gif?w=560&ssl=1)
Another big event to keep an eye on this week is the inauguration of President-elect Joe Biden on Wednesday. “Security in Washington DC and many state capitals has been strengthened due to concerns about violence,” said BBH’s global head of monetary strategy, Win Thin.
In addition, markets are paying close attention to the Bank of Canada meeting on Wednesday, as well as meetings of the European Central Bank, Norges Bank and Bank of Japan on Thursday.
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