Gold Manages its Fifth Weekly Rise but Faces Headwinds from the Dollar

Gold prices headed slightly lower on Friday as the US Dollar firmed, however indications from the Fed regarding slower interest rates helped keep gold on track for five straight weekly gains.

Spot gold started the week at $1,918 per ounce, before rising to $1,932 per ounce in midweek, however, strength in the dollar pared back some of its gains, with the dollar rising 0.3%, making gold more expensive for gold holders in non-US Dollars. Gold finished the week at $1,927 per ounce.

Nevertheless, this was the fifth weekly gain in a row.

The strength in the Dollar may not be over however. “The U.S. dollar is finding some form of stability and in turn we could see gold prices heading lower into next week,” said Daniel Ghali, commodity strategist at TD Securities, quoted by Reuters.

Gold Technicals

The daily XAU/USD chart suggests a bullish continuation, but it is thought that a close above $1,935 is needed to open the door to the next leg up. The gold RSI is currently just in overbought territory, but it is expected that once it drops back into the normal range it will attract buyers and possibly propel gold to the $1,950 mark, after which, $2,000 will be in play.

USD Outlook

Looking further forward, the 30% rally in the USD thanks to Fed policies seems to be ending with evidence of inflation cooling. Analysts suggest maybe one or two more rate hikes this year, then rates cuts in the second half. According to Reuters, Morgan Stanley’s team said they would “double down” on their dollar bearishness and cut forecasts further – seeing DXY 6% lower than previously and euro/dollar as high as 1.15 versus 1.08 before that. “Macro forces once constraining dollar weakness are now amplifying it,” they said. “Global growth is showing signs of buoyancy, macro and inflation uncertainty are waning, and the dollar is rapidly losing its carry advantage.”

Gold and Politics

On Tuesday, U.S. Treasury Secretary Janet Yellen sent a letter Tuesday to congress explaining that she will suspend the reinvestment of some federal bonds in a government workers’ savings plan as a measure to allow more time for Congress to raise the nation’s debt limit. Yellen had previously said on Jan 19th that the US had reached its $31.4 trillion borrowing limit, but could continue paying its bills until June by shuffling finances around.

However, once the money-shuffling has been exhausted, the very real prospect is that US will not be able to pay its bills, which would send shockwaves through the global economy. As per Reuters: “A missed debt payment would likely send shockwaves through global financial markets, as investors would lose confidence in Treasury’s ability to pay its bonds, which are seen as among the safest investments and serve as building blocks for the world’s financial system.”

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