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Gold Poised To Push Higher As U.S. Dollar Weakness Persists
Written by article default Saturday, 09 October 2010 10:38
Gold Poised To Push Higher As U.S. Dollar Weakness Persists
Fundamental Forecast for Gold: Neutral
* Crude Oil Hit by Profit Taking After Huge Run, Gold Sinks Most since July
* Central Bank Watch: Forex Markets Watch Fed, Bank of Japan, ECB’s Next Moves
* Gold On The Verge of Losing Shine; Yen Price Action Making Less Sense
Gold futures rallied to a record $1,366/oz during the first full-week of October, and prices may continue to push higher over the near-term if the bearish sentiment underlying the U.S. dollar gathers pace going forward. After marking the biggest decline since July, the bullion bounced back going into the end of the week as the greenback weakened against its major currency counterparts, and the dollar may continue to depreciate throughout the month as investors speculate the Fed to expand quantitative easing at its next rate decision in November.
Non-farm payrolls in the U.S. tumbled 95K in September, which exceeded forecasts for a 5K decline, and the ongoing weakness in the labor market reinforces a dour outlook for future growth as private-sector consumption remains one of the leading drivers of growth. The larger-than-expected drop in employment spurred increased expectations for an expansion in monetary policy as the central bank aims to encourage a sustainable recovery, and dovish comments from the Fed is could bear down on the dollar on Monday as global policy makers attend the International Monetary Fund-World Bank annual meeting over the weekend. IMF Managing Director Dominique Strauss-Kahn said four major topics will be up for discussion at the summit, which includes financial reform, global cooperation, the risks for a jobless recovery, and the uncertainties surrounding the sovereign debt crisis, and the communiqué from the meeting could shake up the financial markets on Monday as investors weigh the outlook for future policy. At the same time, world officials may address the buzz behind a “currency war,” which could become hot topic amongst the group, and comments regarding the difference in global interest could spark mixed price action next week as policy makers take steps to keep their economies afloat.
Nevertheless, members of the Federal Reserve are likely to maintain a cautious tone for the world’s largest economy given the ongoing slack within the private-sector, and Chairman Ben Bernanke may see scope to expand monetary policy further as households face tightening credit conditions paired with ongoing weakness in the labor market. As the Fed aims to increase transparency, comments from the central bank could encourage expectations for increased monetary support, which would instill further weakness in the greenback. As the U.S. dollar remains the reserve and the trade currency for the world, the bearish sentiment underlying the greenback is likely to push gold prices higher over the coming week.
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