Buying gold with the idea that monetary stimulus maybe forthcoming

In the coming week, the U.S. economic calendar is due, loaded with key data releases which could influence gold’s price direction. This week’s bounce from the recent lows has some market players expecting the yellow metal to try to test the $1,600 an ounce area.

Prices ended higher on Friday, but remained lower on the week. Despite a lower close on the week, some traders said gold’s strength above the $1,520s area is a positive sign which may signify continued gains next week.

Looking forward, U.S. markets are closed Monday for the Memorial Day holiday and normal trade will resume on Tuesday. Very intense shortened trading week is ahead, when looking at U.S. economic data. Most important for the markets is the unemployment data for May. The figures will represent the last jobs report until the next Federal Open Market Committee meeting in June. The Federal Reserve will take into account the jobs data as it reviews monetary policy. Weaker than expected number could make some gold traders think that new stimulus are on the cards. The current stimulus program, “Operation Twist” runs until the end of the next month.

Gold is likely looking for more monetary stimulus to rebuild the last September all-time nominal high. That monetary stimulus could come not just from the Fed, but also by the European Central Bank, other European central banks, the People’s Bank of China and the Reserve Bank of India.

If the next week’s U.S. economic data is lower than expected , that could weigh on the rising dollar. Dollar strength pressurs gold lately. Furthermore, weaker data may entice buying of gold on the idea that monetary stimulus maybe forthcoming.

Technical chart indicators have been an influence on gold recently and traders will continue to look for chart patterns for direction next week. A close over $1,620 should trigger rallies, with a close under $1,525 signaling a return of the bear market.