Top Story

Gold may snap two week rally as focus turns to US dollar

Gold ended higher for the second and silver for the third straight week on Friday ahead of the long weekend. The precious metals had been supported by a falling dollar, which last week hit its lowest level since early November against a basket of foreign currencies. That was last week, this week things might very well be very different. After all, the Dollar Index actually ended higher last week, albeit only moderately. The greenback may be due a stronger recovery ahead of this week’s US jobs data and the Federal Reserve meeting next month. If so, this could weigh on buck-denominated precious metals, especially if we also see further new all-time highs on Wall Street which in turn may dampen the demand for perceived safe-haven assets, including gold and silver.

The Dollar Index’s rebound last week was chiefly in response to the EUR/USD ending its own rally. The single currency had been rallying up until now on hopes that recent improvement in economic activity in the Eurozone would encourage the European Central Bank to start tightening its policy. However, those hopes have been dashed by Mario Draghi, the ECB President, who said that “an extraordinary amount of monetary support” is still needed. Although off its low, the EUR/USD has broken back below 1.12 handle. The possibly of an early election in Italy and renewed concerns about Greece are additional factors that could weigh on the euro this week. The dollar meanwhile could get a more profound boost if we see a surprise improvement in incoming US economic data.

In fact, gold was responding to a key resistance area at the time of this writing. As can be seen, the precious metal has turned lower after failing to hold its own above the highs of last week and Monday’s ranges. This on its own is usually a bearish sign as it shows the bulls are unwilling to bid the market any higher, but more so because of the fact that this apparent fake out has occurred near the $1265-70 old support area, now resistance. With the long-term bearish trend line still holding firm, the yellow metal could drop sharply if further support levels such as $1259 start to break down. 

Source: eSignal and FOREX.com

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account