Shortly before gold beats the US dollar – Analysts

(Kitco News) – The gold market ends the week close to the peak of its two-week range and some analysts expect prices to continue to climb, while the US dollar is on its last turnaround.

Commodity analysts have noted that recent bullish trends in gold are impressive as they have been made against the continued strength of the US dollar. Although the momentum was not strong, gold managed to keep itself above the critical psychological level at $ 1,300 per ounce. The latest gold futures in April traded for the last time at $ 1,323.90 per ounce, up slightly from Friday's settlement price.

Meanwhile, the US dollar index ended the week at the highest level since the start of the new year and stood at 97.09 points, up almost 0.5% from last week .

Although it is not uncommon for the US dollar and gold to come together, the trend has never been sustainable. In the future, many analysts believe that gold will eventually defeat the US dollar. Analysts expect gold prices to rise at least during the week's shortened trading week due to the extended President's Day weekend.

Eugene Weinberg, head of commodities research at Commerzbank, said he was witnessing increasing headwinds for the US dollar, which will continue to profit from gold.

"A number of factors are weighing on the US dollar: growing recession fears, weaker manufacturing data and a Federal Reserve that will not raise interest rates any time soon," he said. he declares.

The US dollar is on thin ice

David Madden, market analyst at CMC Markets, also said that, despite the weak momentum of gold, it will eventually defeat the strength of the US dollar.

He added that the US dollar benefits more from weaker global currencies than the legitimate force. While the Federal Reserve has almost established a neutral interest rate outlook, other central banks have become even more dovish.

"This less dovish sentiment will continue to support the US dollar, but it will be difficult for the currency to recover and I think it's where the gold is benefiting," he said. "Do not expect a major breakthrough, but the rising trend of gold is here to stay."

Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, said he's also witnessing the recent rally in stock markets supporting the US dollar, but that this will only prove to be a catalyst limit.

"The dollar is on the ice thinning, in our opinion, with its main remaining support factor – the outperformance of the stock market – clashing with layers of resistance," he said Friday in a report. "A greenback rally will likely require the world-class S & P 500 to remain above the 2018 record. We see the return to the mean as the biggest risk. "

The Federal Reserve Pending for the foreseeable future

For many analysts, the Federal Reserve's "patient" policy, formally introduced after last month's monetary policy meeting, is the single biggest hurdle the US dollar faces this year and the main driver of price inflation. gold.

Economists expect the Federal Reserve to reiterate its neutral stance after the March monetary policy meeting. The CME tool market FedWatch sees the US central bank on hold next month.

Not only is a dovish Fed a problem for the US dollar, but it also means that bond yields will also be lower and when inflation rises, real yields will be low.

Maxwell Gold, investment strategy director at Aberdeen Standard Investments, said the low real yields were favorable for gold as they reduced opportunity costs for the yellow metal. Gold said that for investors, gold was an attractive alternative asset in an environment characterized by low bond yields and volatile stock markets.

He added that it would be difficult for the Federal Reserve to raise interest rates as fears of a global recession continue to grow.

"I think we have seen a spike in real interest rates and that it will be good for gold," he said.

Two winners warn of risks of recession

According to some analysts, gold has been able to hold up against the US dollar because of the growing fear of the recession. Last week, two economists, winners of a Nobel Prize, warned investors against the growing threat of a recession.

"It seems like there's a high probability of recession this year or next year," said Robert Shiller at a roundtable held at the InsideETFs conference in Hollywood, Florida.

Earlier in the week, Paul Krugman said that there was a significant chance that the world would fall into recession this year.

Jerry Hicks, director of sales and business at the Perth Mint, said gold was the best protection against an impending recession, as it was not strongly correlated with other assets.

Gold has the momentum to climb higher

While gold remains above critical support at $ 1,300, analysts noted that the market needed to exceed initial support at $ 1,320 to gain momentum.

Colin Cieszynski, chief market strategist at SIA Wealth Management, said a breakout above $ 1,320 could be a rest for long-term resistance at $ 1,360.

"Technically, the gold looks strong and the momentum does not suggest that it is overbought," he said. "Gold looks good because it seems that all the headwinds of the US dollar have reached their peak."

The last say

It is a relatively quiet week in terms of economic data; the Canadian and US markets were closed on Monday.
However, markets will closely monitor US durable goods data on Thursday to gauge the health of the manufacturing sector.

Preliminary and regional manufacturing data will also be released on the same day. Tracking important data on home sales. The housing sector has been a major weak point in the US economy as fewer consumers have bought homes, driven by rising interest rates.

Market participants will also be eager to read the Federal Reserve's monetary policy meeting in January to determine how dovish the committee is after recognizing the growing risks in the global economy.

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