Wall Street and Main Street alike look for gold’s resurgence to continue next week, based on voting in the weekly Kitco News gold survey.
Traders and analysts cited the continuing turmoil surrounding the U.S. presidency of Donald Trump, weakness in the U.S. dollar and technical-chart momentum.
Gold investors will want to pay more attention to political turmoil in Washington D.C. as this could have more impact on the U.S. dollar and the yellow metal than the Federal Reserve’s interest rate decision.
Analysts have noted that gold is preparing to end Friday at its highest level in three weeks, its second consecutive weekly gain driven by further U.S. dollar weakness. The U.S. Dollar Index is preparing to end the week at its lowest level since in more than a year. August gold last traded at $1,253.40 an ounce, up more than 2% from the previous Friday close. At the same time the U.S. Dollar Index last traded at 94, down more than 1%.
Silver is also ending its second week of positive gains with September silver futures last trading at 16.45 an ounce, up more than 3% from the previous week.
The selloff in the U.S. dollar picked up momentum this week as the U.S. Senate was unable to pass legislation to replace and repeal the Affordable Health Care Act. The failure of the bill has created some doubt as to whether or not Congress will be able to push forward ambitious fiscal proposals including tax reform and deregulation.
The Fed Has No Secrets That Could Hurt Gold Next Week
As majority of traders and investors are focusing on the U.S. politics next week, the Federal Reserve’s monetary policy meeting is expected to be a relatively minor event.
While there are expectations that the Fed will announce that it is prepared to start unwinding its $4.5 trillion balance sheet as early as September, some analysts said it is only a house keeping move since the central bank already released its plans on how it will shrink its balance sheet.
As revealed in the May’s monetary policy meeting minutes, the central bank would look to reduce investments in treasuries by $6 billion a month, increasing that level by $6 billion every three months until it reaches $30 billion. At the same time, it would reduce its holdings in mortgage-backed securities by $4 billion a month, raising the limit by $4 billion every three months until the amount reaches $20 billion.
“I think the Fed has already been as hawkish as it’s going to be, so a lot of this is priced into the markets,” he said. “Because the economic data has been so poor I don’t think the central bank will be more hawkish than it has already been.”
In fact, some analysts noted that an announced launch of the balance sheet reduction plan is not a sure thing. Analysts at TD Securities said that they see a chance that the Fed delays the launch until September.
“Without a press conference or updated projections in July, we see the Fed largely on standby as they debate how to proceed with policy normalization along multiple dimensions — and how to communicate their decisions.” the analysts said in a research note Friday.
But Is Gold Running Out Of Momentum?
While a weaker U.S. dollar will be bullish for gold, some analysts see technical indicators that highlight weakening momentum in gold as it suffers from the summer doldrums.
In a recent interview with Kitco News, Karen Jones, market analyst at Commerzbank said that while gold has potential, it doesn’t appear to have enough momentum to push above $1,300 an ounce. She added that a break of that key level is needed to signal the market’s renewed uptrend.
Newsom noted that gold’s daily uptrend is smacking into its weekly downtrend and the market could end up running out of as mid-week.
“I think we are at the point where gold has run its course in the short term,” he said.
Nick Exarhos, senior economist at CIBC World Markets, said while he doesn’t see much bullish news for the U.S. dollar, he thinks the rally is a little bit overdone and the positive economic news next week could at least stop some of the selling pressure. This in turn, he noted should cap gains in gold.
Levels To Watch
Gold is ending the week in the middle of a four-month old channel between $1,200 and $1,300 an ounce. Analysts note that there are important resistance levels to watch in the near-term.
Bill Baruch, senior market analyst at iiTrader.com also said that while gold bulls have the upper hand in the marketplace, prices need to push above $1,260 an ounce to confirm the renewed uptrend.
Newsom said that he is also watching the $1.260 level, but he expects that a failed breakout will eventually lead to prices pushing to the $1,190 area.
Jones explained that while she is optimistic on gold in the long-run, she can’t be completely bullish until prices push above $1,300 an ounce. On the flipside, she said that she wouldn’t shift to a bearish stance unless prices fall below $1,153 an ounce.
Reference: Kitco
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