Editor’s note: Keep up to date with our quick summary of today’s must-read news stories and expert advice moving the precious metals and financial markets. Sign up here!
(Kitco News) The US dollar rally has drawn attention to gold and silver, making recovery in precious metals more difficult, according to analysts. But can this dollar rally be trusted? Or should investors instead focus on buying the current dips in gold and silver?
The correlation with dollar gold will in the short term be one of the primary drivers for the precious metal, said MKS PAMP Group. “The correlation between the USD and gold remains intact to dictate price action over the full term, keeping the DXY index at 93.00.”
The US dollar index gained momentum after the Fed published its FOMC meeting minutes, which caused some confusion.
‘At least half of the decline … in gold was due with the publication of the evening of the minutes of the FOMC meeting on 29 July. They did not include any indication of any severe control over yield curves. This has probably led some market participants to place bets on this event to increase their positions, ”said Commerzbank commercial analyst Carsten Fritsch.
In response, the US dollar began to rise, weighing on gold. “The USD [found] a solid short-coverage rally, with the best one-way gain since March 30 (on the USDX), ”wrote Pepperstone head of research Chris Weston.
After the Fed minutes were released, the market continued to work on what could potentially be introduced at the upcoming September Fed meeting.
From a trading perspective, the question is whether the markets can trust the current rise in the US dollar?
Weston looked at the new week’s daily charts and Jackson Hole Symposium for answers.
“One point I will make here is on the daily charts. We have seen some reverse key days play in USDJPY, AUDUSD, with EURUSD a lower high and a lower low print,” he said on Thursday. ‘I feel that the Fed remains foolish, there is little doubt that Congress can not agree on fiscal [spending], but with the market requesting the September meeting and here a definitive change of policy, the market will change its short USD position thereafter. It leads us to think that next week’s Jackson Hole Symposium is one to watch and a volatility event. “
This year, the Jackson Hole Symposium, entitled ‘Navigating the Decade Ahead: Implications for Monetary Policy’, will be held online.
Any additional comments from Fed Chairman Jerome Powell will be important next week, as questions about yield curve control and inflation targeting still create confusion.
“There seems to be little consensus in the Fed collective to adopt an inflation-targeting scheme, which is what so many have been advocating for and why I would argue is a factor behind recent USD sales,” Weston added. .
Analysts have removed unlimited money printing, loose monetary policy, weaker US dollars, and fears of currency collapse as the primary drivers behind historic gold rallies this summer, which saw prices see new record highs above $ 2,000 an hour and close to $ 2,100 .
So, can this short-term dollar rally and gold price reversal last?
The dollar rally looks like a simple recovery from a short-term dollar trade that has dominated the past few months, Phoenix Futures and Options LLC President Kevin Grady told Kitco News. “A lot of people bought the dollar. At the moment, we are seeing a correction in the market, ‘Grady said.
However, that changes the picture in the long run, where gold heads are higher and the US dollar lower.
‘I do not think the image for gold has really changed. You see continuing with sharp meetings in gold after withdrawal of price, ‘Grady pointed out. “There are currently a lot of retail players in the golden space, trading the micro-contracts and playing with short-term speculation. Those are the guys moving the market. ”
The US dollar is also likely to weaken further once the new US stimulus package is finally approved, he added.
“If another incentive package comes out, it will weaken the dollar. A lot of people are looking for incentives and it hasn’t come yet, which is also why we are seeing a short term dollar rally. ”
The basis for precious metals remains Bullish. “Gold should be above 2,000 by the end of the year. Trade talks with China see nothing definitive. Also, the amount of stimulus that has gone into the markets and low interest rates will keep a bid in gold, ‘Grady said.
At the time of this writing, the Comex gold futures of December were trading at $ 1,953.50, down 0.85% on the day.
Another important point to keep in mind is that a weaker US dollar does not necessarily mean that the status of the dollar as the reserve currency in the world is in danger.
“Many people are saying that the US dollar is losing its status as a world reserve currency. I do not agree with that. Many countries have sent out incentive packages. The US has just been more aggressive. It will help bring economies out of the recession faster. I do not see any change in the currency regime, ‘Grady noted.
In its latest report, Capital Economics also concluded that weaker US dollar does not mean it is losing its status.
“Although it has stabilized a bit over the past few weeks, the dollar has fallen by about 7% on a trade-weighted basis since its peak in March. And in July, it recorded its biggest monthly fall against other advanced economies currencies on a trading weight basis in more than a decade, ”said Capital Economics senior economist Jonas Goltermann.
“While we think the US dollar will weaken a little further this year, there are suggestions that its role as the primary reserve currency in the world is in jeopardy, wide of the mark in our view,” Goltermann added.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither does Kitco Metals Inc. nor can the author guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article does not accept any liability for loss and / or damage resulting from the use of this publication.
.
