Gold Price Remains Vulnerable To A Stronger US Dollar - Analysts
New York (May 22) Gold prices ended up Friday, just a few dollars off their weekly low, but managed to hold on to the $1,200 an ounce level as a stronger U.S. dollar and low liquidity in the marketplace created some week-end selling pressure, Friday.
Gold ended the week in negative territory, after two consecutive weeks of positive gain. Comex June gold futures ended Friday at $1,204 an ounce, down more than 1.5% from Monday’s opening price. At the same time the silver market underperformed as Comex July silver futures settled Friday at $17.111, down more than 2.4% for the week.
The selloff in the gold market started on Tuesday as a five-day rally lost momentum to a surging U.S. dollar. Looking ahead, the price forecast appears at best mixed. The Kitco weekly gold survey saw a drop in enthusiasm as most Main Street voters are negative on gold prices next week but most analysts are bullish.
According to the results of the online survey 256 people voted; of those, 104 participants, or 41%, expect to see higher gold prices next week, 117 people, or 46%, expect to see lower prices and 35, or 14%, are neutral. At the same time out of 33 market experts contacted, 19 responded; of those, 8 participants, or 42%, see lower prices, 6 experts, or 32%, see higher prices and 5, or 26%, are neutral on the gold market. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.
The gold market will start next week rather slow as U.S. markets will be closed for the Memorial Day long weekend; most European markets will also be closed Monday for holidays. However, economists and analysts are expecting volatility to pick up as the precious metal remains sensitive to the U.S. dollar, economic data and Federal Reserve interest rate hike expectations.
“Right now it is all about the king dollar,” said Bill Baruch, senior commodity broker at iiTrader.com, who is neutral on gold prices next week.
He added there is a risk that the greenback pushes higher next week as people have become overly pessimistic on the U.S. economy. A rise in first quarter gross domestic product (GDP) estimates on Friday could be the catalyst that pushes the U.S. dollar above long-term resistance at 96.70 and drives gold lower in the medium term, he said.
“I think we have a lot more growth than the data shows,” he said. “I think we are going to see the numbers pick up and I think the Fed knows that.”
However, he also said that on a technical level, if the U.S. dollar index does not break above that level then it could be hit with some strong selling pressure as investors exit their long positions, which would be positive for gold.
“There are a lot of levels between 96.10 and 96.70 and the U.S. dollar is not going to get out of that range very easily,” he said. “If the U.S. dollar shows any weakness then gold and silver are poised to push higher, like a ball being held underwater.”
Ken Morrison, editor of the online gold newsletter Morrison on the Markets, agreed that gold’s strength will depend a lot on U.S. dollar strength.
“Predicated on an expectation the dollar will continue to slip to the downside in the week ahead, gold should trend higher in the week ahead,” he said. “I believe it has a chance to takeout the $1230 resistance over the next 2-3 weeks.”
Ole Hansen, head of commodity strategy at Saxo Bank, noted that despite U.S. dollar strength earlier in the week, gold managed to hold on to the $1,200 level, which is could help to attract investors back into the marketplace.
“Given the very light positioning both in [exchange-traded funds] and futures the risk at the moment increasingly seems skewed to the upside,” he said.
Nick Exarhos, senior economist at CIBC, agreed that gold remains vulnerable to more U.S. dollar strength and Friday’s inflation could shift expectations next week that the Fed might hike rates sooner rather than later.
Chris Beauchamp, senior market strategist at IG Markets, said that although the U.S. dollar as hurt gold’s recent rally, doesn’t expect to see lower prices automatically.
“I wouldn’t get too keen shorting it before it breaks $1180, that’s been big support in recent weeks. I think $1150 is still probable, but we need to clear out that downside support zone at $1180 first,” he said.
Along with Friday’s GDP, gold and the U.S. dollar could react to durable goods data and consumer confidence numbers, which both will be released Tuesday, more housing data and regional manufacturing data will also be released throughout the week.
Source: KitcoNews
