On Monday (January 18) in the Asian market, spot gold continued to rebound in the short term, gold price just broke through the 1830 US dollars/ounce mark, the Asian market at the beginning of the gold price “dive” and close to US $1800 / ounce. The dollar index against a basket of currencies was little changed, trading around 90.75 after earlier approaching the 91 mark. U.S. media reports that former Federal Reserve Chair Janet Yellen will testify before the Senate Banking Committee on Tuesday that the United States does not need a weak dollar policy have encouraged dollar bulls.
Janet Yellen will appear before the Senate Banking Committee on Tuesday to accept her nomination to be the next U.S. Treasury secretary.
Yellen is expected to reiterate her commitment to market-determined exchange rates at Tuesday’s hearing, while also making clear that the United States will not seek a weak dollar to gain a competitive advantage, according to officials familiar with Biden’s transition administration.
“The value of the dollar and other currencies should be determined by markets, which adjust to reflect changes in economic performance,” Yellen was reported to say in response to questions about the new administration’s dollar policy at Tuesday’s hearing.
Ms. Yellen has been one of the leading doves during her tenure as Fed chair. Ms Yellen has previously cited the benefits of a weaker dollar for exports and improving the current account deficit.
The current US President Donald Trump has repeatedly expressed the view that the “dollar is too strong” during his term in office, believing that a strong dollar hurts US competitiveness while a weak dollar helps US exports.
The dollar index rose further in early Asian trading on Monday, hitting as high as 90.89 on the back of the report.
Due to the dollar index short-term sharp rise, spot gold Asia market in early trading once fell sharply, as low as $1804.31 / ounce, the lowest level since December 1 last year.
Nicholas Frappell, global managing director at ABC Bullion, said gold remained vulnerable to dollar sentiment and yields in the short term.
Spot gold settled Friday at $1,828.30 an ounce, down $18.08, or 0.98 percent, as the dollar strengthened.
On Monday, as the dollar gave up some gains, gold gradually took a firm footing, gold prices continued to rise again after a short – term break through $1830 / ounce. In addition, the prospect of a massive U.S. economic stimulus remains a boost for gold.
Gold has fallen for two straight weeks as investors watch for changes in Treasury yields, the dollar and exchange-traded fund holdings.
Suki Cooper, an analyst at Standard Chartered, said: “The strengthening dollar and the rise in Treasury yields have triggered a short-term pullback. The gold market is caught between long-term buying on the one hand due to rising stimulus-fuelled inflation expectations and selling on the other hand due to the rebound in the US dollar and rising fears of tapering QE.”
Daniel Ghali, commodity strategist at TD Securities, said gold could see further weakness this week. If gold falls below $1,800 an ounce, it could test $1,775.
“If the dollar index follows yields higher, gold could fall below $1,800 and hit $1,795 an ounce,” said Phillip Streible, chief market strategist at Blue Line Futures.
Trading in CME’s precious metals, U.S. crude oil and foreign exchange contracts ended early at 02:00 a.m. Hong Kong time on Monday, when the New York Stock Exchange was closed for the Martin Luther King Day holiday. Market liquidity will be affected during the market break, which can easily lead to market volatility.
The long-term outlook for gold remains good
In the long term, commodity analysts remain bullish on gold, especially on the back of heavy U.S. government spending, which could weaken the dollar and support bullion prices.
On Thursday night, US President-elect Joe Biden unveiled details of a $1.9 trillion coronavirus relief plan aimed at supporting families and businesses through the pandemic. The proposal, known as the American Rescue Plan, includes several familiar incentives in the hope that the additional financial support will sustain American families and businesses until the vaccine is widely available.
In late December 2020, Congress passed a $900 billion economic rescue bill, which Biden called an “up-front payment.”
Since gold is often seen as a hedge against inflation and currency depreciation, a big stimulus package would boost demand for the precious metal.
Mr Biden’s Novel Coronavirus economic rescue plan “could fuel speculation about rising inflationary pressures in the US”. “Gold is seen as an inflation hedge, and it could get a boost from fiscal stimulus,” said Lukman Otunuga, senior research analyst at FXTM.
Joe Foster, portfolio manager of VanEck International Investors Gold Fund, says inflation could surpass the Fed’s 2% target as early as April, and that a high-inflation environment will be the main catalyst for Gold to break its all-time high above $3,000 an ounce.
Technically, gold has solid support around $1,775 an ounce, a level that could spark renewed buying, said Michael Matousek, chief trader at U.S. Global Investors in New York.
Adam Button, chief market strategist at ForexLive.com, said: “With the market digesting the stimulus package, inflation fears and the dollar’s rebound, it will be some time before gold starts climbing again.”
Peter Hug, director of global trading at Kitco Metals, said he did not think gold was likely to fall below $1,800 this week and remained constructive on gold prices.
“The short-term economic outlook still looks troubling,” Hug said. “That’s why people are getting scared and raising money again. The market is fragile. But I’m hoping $1,825 will hold. “Once Joe Biden takes office, the money will start to flow and I have a very constructive view on metals.”
“The fundamentals for gold remain very positive,” said Adrian Day, chief executive of Adrian Day Asset Management. The new US administration has increased spending and the Federal Reserve has remained accommodative, a pattern that is reflected in most of the developed world. The gold boom occurred at a time of increased global liquidity.”