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Gold Breaks $1270 With Dollar Weakness Ahead of Yellen Testimony

Gold Breaks $1270 With Dollar Weakness Ahead of Yellen Testimony

2014-02-11 06:31:00
David de Ferranti, Currency Analyst
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Talking Points

  • Gold Breaks $1,270 Resistance Level Amidst Broad US Dollar Weakness
  • Dovish Yellen Testimony May Fuel Further Gains For Precious Metals
  • Copper Bearish Technical Bias Retained As Falls Resume Post Correction

Gold has broken above critical resistance at $1,270 to close at the highest level in more than two months, while crudeoil continues to tread water around the psychologically significant $100 level ahead of upcoming testimony from Fed Chair Janet Yellen.

US Dollar Weakness Helps Drive Gold and Silver Gains

The US Dollar has continued its drift lower following Friday’s disappointing US NFP data. The second consecutive weaker-than-expected reading has likely prompted speculation over whether the US Federal Reserve will postpone cuts their stimulus program, which in turn has weighed on the greenback and led to gains for gold.

Yellen to Offer Greenback and Commodities Further Guidance

Upcoming testimony from Fed Chair Janet Yellen may offer fresh insights into whether the FOMC will maintain the status quo, which envisions cutting QE asset purchases by a cumulative $10 billion each month. If discouraging jobs data prompts a dovish tone from Yellen, then the US Dollar would likely suffer further declines, which in turn may benefit precious metals. Additionally, the prospect of a less aggressive “tapering” timeline may buoy risk appetite and strengthen growth-sensitive commodities like oil and copper.

The Speculative Sentiment Index continues to provide a bullish bias for Gold.

CRUDE OIL TECHNICAL ANALYSIS The daily chart on oil is showing signs of indecision amongst traders demonstrated by the recent Doji candlestick formation and a failure to break above resistance at $100.94. Additionally, the rate of change indicator is suggesting a slowing of momentum in the ongoing uptrend.

Gold_Breaks_1270_With_Dollar_Weakness_Ahead_of_Yellen_Testimony_body_Picture_4.png, Gold Breaks $1270 With Dollar Weakness Ahead of Yellen Testimony

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS Gold’s daily close above the critical resistance level of $1,270 and the ascending wedge formation suggests a bullish technical bias on the commodity. A possible upside target may be the 61.8% Fib Retracement level at $1,291.86.

Gold_Breaks_1270_With_Dollar_Weakness_Ahead_of_Yellen_Testimony_body_Picture_3.png, Gold Breaks $1270 With Dollar Weakness Ahead of Yellen Testimony

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS Recent price action in silver is suggesting that the precious metal’s upside momentum may be waning. This is signified by several short trading days with long upper wicks that suggest buyers have been unable to maintain their grip on gains. Another Shooting Star formation is warning of a bearish reversal for the commodity, but is yet to receive confirmation from an ensuing down day. However with trend line support nearby, the downside may be limited and thus a mixed bias is preferred.

Gold_Breaks_1270_With_Dollar_Weakness_Ahead_of_Yellen_Testimony_body_Picture_2.png, Gold Breaks $1270 With Dollar Weakness Ahead of Yellen Testimony

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS The downside remains preferred for copper as the daily still suggests a short-term downtrend with prices below their 20 SMA. The recent correction higher is seen as another opportunity to short with a possible target at the support level of $3.170.

Gold_Breaks_1270_With_Dollar_Weakness_Ahead_of_Yellen_Testimony_body_Picture_1.png, Gold Breaks $1270 With Dollar Weakness Ahead of Yellen Testimony

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by David de Ferranti, Market Analyst, FXCM Australia

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