In the coming week, the gold market will be very sensitive to the U.S. dollar direction. Additionally, later in the week several key pieces of information, including a monthly jobs report in the U.S., are expected to indicate the metal’s price further direction.
Nearly 5% down in May, the yellow metal lost 16.8% year-to-date.
On Friday, August gold futures fell, settling at $1,393 an ounce on the Comex division of the New York Mercantile Exchange, but closed up 0.4% on the week.
July silver also slipped on Friday, settling at $22.243 an ounce, down 1% on the week. For the month silver is down 8%, while on the year is down 26%.
Gold registered two straight weeks of higher closes and for the short-term it looks like the yellow metal is testing the upper end of the current price range. Weakness in the U.S. dollar and volatile equity markets, particularly in Japan as the Nikkei plunged, supported gold and silver last week.
How long gold would continue to rise depends on the dollar, stocks and whether the market can break through stiff technical chart resistance at $1,425, which at present seem possible.
Gold prices can trade both the upside and the downside next week, but it is a good sign that the price crossed the $1,400 last week. If equities continue to tumble, the yellow metal’s price is likely to advance, but if the dollar rallies it may fall. In our views, strength in gold looks likely to prevail, driving prices higher than we saw last week.
There are several events that would influence market direction in the coming week. The U.S. Federal Reserve’s monetary policy meeting is scheduled this Wednesday, ahead of the Federal Open Market Committee meeting June 18 and 19.
Financial markets, in general, are starting to prepare for the Federal Reserve’s exit from its ultra loose monetary policy. This means investors are positioning themselves for less money floating in the U.S. markets. Equity markets were wobbly last week, with U.S. equities down and Japanese equities off sharply on that idea. For what is worth, Dubai’s stocks are now at 55-month high, with the Dubai Financial Market up over 10% only in May.
- Read more: Dubai stocks hit 55-month high
In general, the U.S. markets movements indicate the Fed’s exit of monetary stimulus is now more probable to happen sooner than 2015.
- Read more: Frontier Markets ETFs Soared in May
The U.S. will most likely see a gradual economic recovery and the Federal Reserve will taper its bond buys on and off during a prolonged period of time. Based on that view, private equities promise better return, as safe havens lose their allure.
Therefore, gold is struggling in the current environment as it remains vulnerable to a further correction in safe havens.
Elsewhere, as it meets on Thursday the European Central Bank will grab the news headlines. No policy changes are expected, however, after recent weaker-than-expected eurozone data, market participants will watch for indicators from the ECB future policy.
On Friday the U.S. May unemployment report would be released, and this is the most important report of the month and the last unemployment report before the June FOMC meeting on June 18-19. Therefore, markets will look to it for monetary-policy implications.
In our views, the U.S. monetary policy will remain unchanged during the summer months, with the Federal Reserve looking for more stable economic data.
Resources for gold investors and traders:
- Top Rated Books for Silver Traders Review
- Top Rated Books for Gold Traders Review
- Social Media for Stock Market Traders
