(Kitco News) - What a difference a few days can make as the gold market sees renewed optimism, ending the week solidly positive on the back of a weaker U.S. dollar and lower U.S. treasury yields.
Comex April gold futures settled the week $1,184.60 an ounce, 2.31% higher since Monday. Earlier in the week, just before the Federal Open Market Committee (FOMC) meeting, a strong U.S. dollar dragged the yellow metal to a low of $1.141.60 an ounce.
Comex May silver futures had an even better week, settling at $16.883 an ounce, up 8% since Monday. Silver futures closed Friday at their highest level since Feb. 17.
Analysts noted that gold rallied as a result of investors being caught off guard after the FOMC released a more dovish-than-expected monetary policy statement and lower economic growth projections. Although the central banks removed the key word “patient” from the statement, Fed Chair Janet Yellen said during her press conference that the committee will not be “impatient” to raise rates.
Looking ahead to next week, with little economic data to be released, analysts are expecting gold to continue to take its cue from the U.S. dollar. Most commodity analysts see room for the yellow metal to move higher as investors take some of their U.S. dollar profits off the table.
Colin Cieszynski, senior market analyst at CMC Markets, said that he could see gold take a run up to $1,200 an ounce next week, but it might not have enough momentum to break that key psychological barrier.
“The U.S. dollar has been on a spectacular run so I think we could see it consolidate lower, which would be positive for gold,” he said.
Ole Hansen, head of commodity strategy at Saxo Bank, said that he could see gold test resistance at $1,190 an ounce next week as it consolidates with support at $1,150. He agreed that the U.S. dollar’s long overdue correction will have the biggest impact on gold prices.
“It’s too early to say if this is the start of a new leg higher for gold,” he said. “A break above resistance at $1,193 would confirm that $1,140 is once again a decent area of support.”
Nic Brown, head of commodity research at Natixis, said that the recent U.S. dollar correction is helping all commodity markets, and although there is growing optimism in the marketplace, they need to wait and see if the U.S. dollar has topped out before expecting to see a sustainable gold rally.
“If that is the case then gold, silver, [platinum group metals], base metals, energy, most commodities, have the potential for more upside,” he said.
Gold Could React To Economic Reports As Fed Is Data Dependant
Although next week isn’t packed with economic data, analysts noted that it could play a role in U.S. dollar direction, especially after the Federal Reserve said that any change in monetary policy will be data dependant.
Hansen said that one of the reasons he is looking for a weaker U.S. dollar next week is because, aside from nonfarm payrolls, most of the data - going back to December - has disappointed. “The market has ignored all this negative data to focus mostly on potential rate hikes,” he added.
“The economic data does not paint a very good picture,” he said. “I think we can expect to see more of the same.”
Next week, financial markets will receive more housing data with the release of existing and new home sales numbers. Economists from Nomura said in a recent report? the housing sector is stagnating because of the lack of new buyers.
Markets will also receive inflation data with the release of the February Consumer Price Index on Tuesday?
Although the Federal Reserve said in its monetary policy statement that they expecting to see weaker inflation in the near-term, economists at CIBC said that disappointing core inflation numbers could further delay expectations of a rate hike. Analysts noted that this scenario would be positive for gold prices.
The week ends with the release of the final report on U.S. fourth-quarter gross domestic product. However, most economists are now focused on the first quarter of 2015, which is quickly coming to an end.
Along with economic data, Cieszynski said that investors should also pay attention to what is happening in Greece as funding talks are expected to resume again. Greece is once again pushing back against austerity measures, but with no new funding deal, there is a chance they would default on their debt and be forced out of the eurozone.
“Any breakdown in funding talks next week is going to be positive for gold, as a safe-haven asset,” said Cieszynski. “However, any gains on political uncertainty might not last. We have seen these kinds of rallies fade pretty fast when the problems are resolved.”