Fed Chair Yellen’s Testimony, U.S. Dollar Flows To Dominate Gold Market Next Week

(Kitco News) - It appears that not even profit taking can keep gold down for very long, as prices ended the session and the week on a positive note. Looking to next week all eyes will be on the U.S. dollar and Fed Chair Janet Yellen to determine where interest rates are going, which is potentially bullish for gold.

After spending most of Friday in negative territory, following a mixed employment report -- Comex April gold futures managed to end the session relatively unchanged, settling at $1,157.7 an ounce, up more than 3.6% on the week. Gold has now closed higher for the last three consecutive weeks.

Although silver prices couldn’t recover during the day, the precious metal still saw impressive gains for the week. March Comex Silver futures settled Friday at $14.778 an ounce, down 0.5% on the day but up more than 3.6% on the week. Similar to gold, silver has also seen a three-week winning street.

It has been a big week for gold, which saw prices push above the 200-day moving average for the first time since October, on the back of a weaker U.S. dollar and increased global economic concerns. The rally doesn’t seem to be quiet over as strong market sentiment points to higher prices in the near-term.

This week, a record 1,417 people participated in Kitco’s online survey. Of those, 1,213 participants, or 86%, are bullish on prices next week; at the same time 134 people, or 9%, are bearish on prices next week; and 70 people, or 5%, are neutral. In the last two previous surveys, 81% of respondents said they were bullish on gold.

Sentiment among market professionals is also positive, albeit not as high compared to the retail side. What is also interesting about this week’s results is that analysts surveyed see the market higher or lower, with no neutral votes cast. Out of 34 market experts contacted, 18 responded, of which 11, or 61%, said they expect to see higher prices next week. At the same time seven professionals, or 39%, said they see lower prices. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Chris Beauchamp, senior market strategist at IG Markets, said he is bullish on gold as it has made an important technical breakthrough and could have further upside in the near-term.

However, while most analysts are bullish in the near-term, they still see the potential for a correction at some point in the next couple of weeks. They note that some profit taking will be inevitable as the gold market has seen positive weekly closes four out of the last five weeks, trading near a three-month high.

“I am predicting higher prices for both gold and silver but gold may run into resistance at about $1,160 which was my goal two weeks ago,” said Bob Tebbutt, of Armour Risk Asset Management.

Sean Lusk, director of commercial hedge at Walsh Trading, said that they could see prices push to $1,175 in the near-term but added that he recommends selling at that level.

While it is a relatively quiet week for economic data, analysts expect that U.S. dollar moves and Fed Rate hike expectations will continue to dominate the marketplace. The highlight of the week will be Fed Chair Janet Yellen’s two-day semi-annual testimony before Congress. She kicks off her testimony Wednesday before the House Financial Services Committee.

Ole Hansen, head of commodity strategy at Saxo Bank said that gold has benefited as a result of unrealistic market expectations of zero rate hikes for the year. He added that while it is also unrealistic to expect four hikes, as the Fed forecasted in December, the market might start pricing in at least two.

“I think the market got a little bit ahead of itself pricing in zero rate hikes, so I think we could see gold come off its highs a little bit,” he said.

However, Ole added that investors shouldn’t expect to see a sharp selloff in gold as global economic uncertainty will continue to be supportive. He said that gold could fall all the way to $1,100 an ounce in the short –term and still maintain its current uptrend.

Mike Dragosits, senior commodity strategist at TD Securities sees a slightly narrow range, saying that gold has to hold the 200-day moving average to maintain its current up trend.

“A break below that level would give short sellers some more momentum and confidence to push prices lower,” he said.

But there is still potential for prices to push the bank’s target of $1,180 on new rate hike expectations and weaker U.S. economic data, he added.

Although the idea of the Fed raising rates four times this year seems unlikely, Dragosits also agrees that the market is too aggressive on expecting zero rate hikes. He pointed out that the domestic economy is still relatively healthy and an important economic driver.

“At this stage in the game it is difficult to tell where we are heading and the Fed is going to need a little bit more time to figure what they are going to do,” he said.

In a Research note published Friday, commodity analysts at Macquarie said that gold will be “highly vulnerable to any shift in macro-sentiment.”

"While gold’s recent rally has been well supported by the moves in the dollar and interest rates, there is little evidence that its relationships with these key variables has shifted," the analysts said. "Put another way gold has not ‘re-rated’ against them, that is moving to a higher price for a givenDXY or interest rate. We believe such a ‘re-rating’ is crucial for a lasting bull market.”

Courtesy: Kitco News