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

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(Kitco News) After selling around $ 1,800 an ounce, gold is looking for bargains with prices returning above $ 1,830 despite a higher US dollar on Monday.

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

With the US dollar controlling gold price movements, this week focuses on the testimony of new US Treasury Secretary Janet Yellen, expected on Tuesday. Markets are focused on Yellen’s comments on the future of US dollar policy, analysts said.

“The dollar rose steadily over the weekend and that could in part be because Janet Yellen, the pending Treasury Secretary, is scheduled to testify on Capitol Hill tomorrow. She should say she does. favorable to a deliberate weakening of the dollar, preferring instead to see the currency valued by free market movements. This, in principle, is favorable to the dollar as it is a change in policy, said StoneX, official of market analysis for EMEA and Asia regions Rhona O’Connell.

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

“The kind of verbal interventions aimed at weakening the SHU that were a common feature of Trump’s presidency are now likely to be a thing of the past,” Fritsch said Monday.

The strength of the US dollar weighed on gold, which fell to its lowest in early December over the weekend, hitting $ 1,800 an ounce.

Gold rallied somewhat on Monday, with spot gold last trading at $ 1,838.20 an ounce, up 0.55% on the day. In the meantime, the US dollar index has continued to climb, trading near its highest level since December 21 and on track to test the 91 area.

“The movements in the price of gold in the recent past have been very largely a function of movements in the dollar, with the euro price moving more or less horizontally over the past week,” O’Connell said. “The drop to $ 1,800 came largely in US Hours last Friday, and then there was another sharp sell off early in Asian Hours this morning, before bargain hunting picks up almost as quickly.”

Friday’s moves were likely amplified due to U.S. markets closing on Monday, O’Connell noted.

Despite Monday’s rally, gold is showing signs of weakness, Fritsch said.

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

Chris Weston, head of research at Pepperstone, has highlighted a red flag to watch for in the short term.

“On Friday we saw real yields on US Treasuries drop 4bp, but the dollar rebounded and gold came out – that’s a red flag to me. In fact, the way gold is going. trading today worries me very much that the market will feel it. Part of the unfolding of reflation betting has more to do, “Weston said on Monday.” I see this drop as a ‘bad’ drop in real yields – where the Inflation expectations and nominal T-bill yields decline together, with nominal T-bill yields falling faster than inflation expectations. Given the foam and overexploitation of the markets, this could be a slight loosening, with the USD at the heart of the movement. “

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

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.