Sell ​​more in the store for gold price? Markets pay attention to Yellen’s view of the US dollar

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(Kitco News) After a sell-off towards $ 1,800 an ounce, gold is on a bargain hunt with prices back above $ 1,830 despite a higher US dollar on Monday.

The increase in market volatility is due to the markets being closed on Monday in honor of Martin Luther King Jr. Day.

With the US dollar in check on gold price movements, the focus this week is on Tuesday’s scheduled testimony from new US Treasury Secretary Janet Yellen. According to analysts, the markets are focused on Yellen’s comments about the future of the US dollar policy.

The dollar has gradually moved higher over the weekend and some of this may have to do with the fact that Janet Yellen, Secretary of the Treasury, will testify on Capitol Hill tomorrow. She is expected to say she does. not favor a deliberate weakening of the dollar, but prefer valuing the currency through free-market movements. This is basically dollar-supportive because it is a policy change, said StoneX chief of market analysis for EMEA and Asia regions Rhona O Connell.

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

“The kind of verbal interventions designed to weaken the USD 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 tumbled to its early December low over the weekend, hitting $ 1,800 an ounce.

Gold rebounded somewhat on Monday, with spot gold last trading at $ 1,838.20 an ounce, up 0.55% one day. Meanwhile, the US dollar index continued to rise, trading around its highest level since December 21, and on track to test the 91 area.

“Gold price movements in the recent past were largely a function of dollar movements, with the price in euros moving more or less horizontally over the past week,” said O’Connell. “The drop to $ 1,800 came largely during US hours last Friday and then there was another sharp sell-off at the start of the Asian hours this morning before the bargain-hunting recovered almost as quickly.”

Friday’s moves were likely amplified by the closing of US markets on Monday, O’Connell noted.

Despite Monday’s recovery, gold is showing some signs of weakness, Fritsch pointed out.

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

Pepperstone’s head of investigation Chris Weston pointed to a red flag to keep an eye on at short notice.

“On Friday, we saw real US Treasury yields drop 4 bps, yet the USD rebounded and gold came back – this is a red flag to me. The way gold is traded today actually makes me quite concerned that the market some of the reflation bets have more to go, “Weston said Monday.” I see this drop as a ‘bad’ drop in real interest rates – with both inflation expectations and nominal government bond yields coming down together and nominal interest rates on government bonds are falling faster than inflation expectations. Given how frothy and congested the markets have been, this could be the start of a slight relaxation, with the USD at the heart of the movement. “

Another important event to keep an eye out this week is the inauguration of President-elect Joe Biden on Wednesday. “Security in Washington DC and many state capitals has been strengthened because of concerns about violence,” said Win Thin, BBH’s global head of currency strategy.

Markets are also paying close attention to the Bank of Canada meeting on Wednesday and the meetings of the European Central Bank, Norges Bank and the Bank of Japan on Thursday.