SMM: market analysts said that while gold prices are still in a state of consolidation, the resurgence of the dollar is the biggest risk facing the gold market next week.
The short-term outlook comes as the gold market prepares to end another tumultuous week of trading in a range close to $80. Gold tested a strong resistance level of $2000 at the start of the week. As the dollar rebounded to its lowest level in more than two years, all gains were erased.
Looking ahead, the shortened trading week on Monday due to the long Labor Day weekend means investors expect gold to fall between $1920 support and $2000 resistance, some analysts said.
The gold market fell more than 2 per cent at the end of the week. COMEX December gold futures closed down 0.2 per cent at $1934.30 an ounce, down 2.1 per cent this week.
The gold market showed slight selling pressure on Friday after the Labor Department said it added nearly 1.4 million non-farm jobs in August. Meanwhile, unemployment fell to 8.4 per cent and wages rose 0.4 per cent.
For some analysts, the recent rebound in the dollar came as no surprise. Speculative short positions have risen to record levels. Analysts point out that the time is ripe for short selling of the dollar.
"it's time for the dollar to fluctuate," said Bill Baruch, president of Blue Line Futures.
While sentiment is becoming more cautious as gold fails to break through the $2000 resistance, some analysts say a further fall in gold prices should be seen as a buying opportunity.
Bart Melek, head of commodity strategy at TD Securities, said that while the dollar had room to rise, strong fundamentals would continue to support gold. He added that gold was expected to remain at the $1920 support level.
"will the price of gold fall below $1900? It's possible, but we think prices will stay and start to go higher, "Melek said. "now is a good time to buy gold. We don't think the stimulus will disappear anytime soon, so inflation will push up and real bond yields will fall. "
Adam Button, chief foreign exchange strategist at Forexlive.com, said in an email that he expects gold prices to continue to consolidate because the market is waiting for more information about potential stimulus measures.
He also said better-than-expected U. S. economic data could put pressure on those expectations.
"the falling unemployment rate in the United States has reduced the likelihood that the Fed will issue a dovish surprise this month," he said. "this will maintain demand for dollars and limit gold."
Chris Vecchio, senior market strategist at DailyFX.com, said he expects gold prices to remain stagnant as the market faces the end of the summer downturn. However, he added that investors needed to continue to focus on the long-term outlook.
"at the moment, we are seeing large fluctuations in gold prices, which is not surprising because it is a crowded market," he said. "but we are entering a traditionally volatile period in financial markets, when gold performed well in times of high volatility. I may not buy gold now, but I certainly won't sell it. "
Pay attention to the European Central Bank
While improved economic data will provide some support for the dollar, most analysts warn investors to focus on external factors, particularly the ECB's monetary policy meeting on September 10.
The dollar recorded its biggest gain in the past week and gold recorded its biggest one-day fall after ECB member Lane said the level of the euro against the dollar was indeed important.
"the ECB must let inflation continue to rise, which means more stimulus measures," Baruch said. "this will push down the euro and push up the dollar."
Economists at Nomura said they did not expect the ECB to act on disappointing inflationary pressures at the moment; however, if they did, it would be through stimulus measures rather than interest rate cuts.
The ECB has pushed interest rates into a negative range.
"while a 10 basis point cut in interest rates is good for the euro, it will do little good to the current level of inflation," the economists said. "
Eugen Weinberg, head of commodities research at Commerzbank, said it was only a matter of time before he expected more stimulus from the ECB.
"perhaps the ECB should do more to boost inflation. Of course they have more room. "
Back in North America, next week's economic data is relatively lacklustre, with investors focused on Thursday and Friday's inflation data.
The Bank of Canada will hold a monetary policy meeting on September 9th. Some economists say it is increasingly likely that the Bank of Canada will follow the Fed in announcing a change in its inflation target.
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