Do you sell more in the store at the price of gold? The markets look at Yellen’s position on the US dollar

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(Kitco News) After selling for $ 1,800 an ounce, gold is on the rise in bargain hunting, with prices backing above $ 1,830, despite a higher US dollar on Monday.

The rise in market volatility comes with markets closing on Monday in recognition of Martin Luther King Jr. Day.

Given the US dollar on gold price movements, this week focuses on the testimony of the new US Treasury Secretary, Janet Yellen, scheduled for Tuesday. Markets are reducing Yellen’s comments about the future of US dollar policy to zero, according to analysts.

“The dollar worked gradually higher over the weekend and part of that could be related to the fact that Janet Yellen, the waiting secretary-treasurer, is going to testify on Capitol Hill tomorrow. He expects to say that he does not favor a deliberate weakening of the dollar, preferring instead to see the currency valued by free market movements. This, in principle, supports the dollar, as it is a policy change, said StoneX, head of market analysis for the 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 meant to weaken the USD, which were a common feature of the Trump presidency, could now be a thing of the past,” Fritsch said Monday.

The strength of the US dollar weighed on gold, which fell to a low in early December over the weekend, reaching $ 1,800 per ounce.

On Monday, gold recovered somewhat, with the latter trading gold at $ 1,838.20 an ounce, up 0.55% that day. Meanwhile, the US dollar index continued to rise, trading near the highest level since December 21 and will test area 91.

“Gold price movements in the recent past have largely worked for the dollar, the euro price has moved more or less horizontally in the last week,” O’Connell said. “The drop to $ 1,800 came largely during US hours last Friday and then a new sudden sell-off took place early in the Asian hours this morning, before an almost as fast recovery in the bargain hunt.”

Friday’s moves were likely to intensify due to the close of US markets on Monday, O’Connell said.

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

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

Pepperstone head of research Chris Weston highlighted a red flag to keep an eye on in the short term.

“On Friday, I saw real yields of the US Treasury lower by 4 bp, but still the USD rallied and the gold came off – this is a red flag for me. In fact, the way gold is traded today makes me quite worried about the fact that the market feels this bet to develop reflation bets has more to go on, “Weston said Monday. “I see this decline as a decline in real ‘bad’ returns – in which both inflation expectations and nominal treasury yields move lower together, with nominal treasury yields falling faster than inflation expectations. Given how frothy and excessive the markets have been, this could be the beginning of a slight relaxation, with the USD at the center of the movement. “

Another major event to watch 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 foreign exchange strategy.

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