More sales in the store for the price of gold? Markets observe Yellen’s position on the US dollar

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(Kitco News) After selling at $ 1,800 an ounce, gold rose in a bit of business hunting with prices hovering above $ 1,830, despite a higher U.S. dollar on Monday.

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

With the U.S. dollar in control of gold price movements, this week will focus on the testimony appointed by the new U.S. Secretary of the Treasury, Janet Yellen, scheduled for Tuesday. According to analysts, the markets are restricting Yellen’s comments on the future of US dollar policy.

“The dollar has been working progressively higher over the weekend and part of that may be related to the fact that Treasury Secretary Janet Yellen is due to testify tomorrow at Capitol Hill. to say yes does not favor a deliberate weakening of the dollar, preferring to see the currency valued by free market movements.This, in principle, supports the dollar because it is a policy change, said StoneX, head of market analysis for in EMEA and Asia.Rhona O’Connell regions.

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

“The kind of verbal interventions designed to weaken the USD that were a common feature of the Trump presidency are now likely to happen in the past,” Fritsch said Monday.

The strength of the US dollar has been heavy on gold, which fell to lows in early December over the weekend and reached $ 1,800 an ounce.

On Monday, gold has recovered slightly, with the last spot gold operation at $ 1,838.20 an ounce, up 0.55% a day. Meanwhile, the U.S. dollar index continued to rise, trading near the highest level since Dec. 21 and following the trail to test the 91 zone.

“Gold price movements in the recent past have been largely a function of the dollar’s ​​movements, with the euro price moving more or less horizontally over the past week,” O’Connell said. “The drop to $ 1,800 occurred largely during U.S. hours last Friday, and after this morning, there was a strong disagreement at the start of Asian hours, before a recovery. almost as fast as business hunting. “

Friday’s moves were likely to widen due to the close of U.S. markets on Monday, O’Connell noted.

Despite Monday’s recovery, gold shows some signs of weakness, Fritsch noted.

“Friday’s falling price meant gold also closed the second week of trading in the new year. Yields on higher U.S. bonds and a firmer U.S. dollar continue to weigh on its price,” he said. “As expected, the fall in the price of gold the previous week was largely driven by speculation. According to CFTC statistics, long net positions held by speculative financial investors fell by a third to the 78,200 contracts of the week until January 12, its lowest level since May 2019 “.

Pepperstone’s head of research, Chris Weston, highlighted a red flag to monitor it in the short term.

“On Friday, we saw the real yields of the US Treasury fall by 4 basis points, but even so, the US dollar rose and the gold came off; that’s a red flag for me. In fact , the way gold is traded today worries me a lot that the market feels this part of the development bet has more to finish, ”Weston said Monday. “I see this fall as a decline in real ‘bad’ real yields, where inflation expectations and nominal Treasury yields are falling together, and nominal Treasury yields are declining faster than inflation expectations. A slight easing, with the USD at the center of the transition “.

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

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