It was a reversal of fortune for the ARCA Gold BUGS this week as statements and testimony from the Federal Reserve and Chairman Janet Yellen reversed gold’s downward momentum while sending the U.S. dollar reeling. This week’s news was all about the Fed’s commentary as they concluded a two day meeting Wednesday releasing a statement thereafter that was seen as dovish by market participants. There was much speculation in the market that the Fed would finally begin to normalize rates amid better than expected monthly job growth. However, global economic headwinds followed by weak wage growth, and underemployment at elevated levels were cited by the Fed Chairman as reasons for pause on hiking rates sooner rather than later which was seen by most market participants as no rate hikes until September. The overly bullish bias in the U.S. dollar due to an expected hawkish Fed this spring combined with weakness in global currencies had the dollar reaching multi year highs earlier in the week. Surprisingly the withdrawal of any near term rate hikes tumbled the Greenback and sent longs looking for cover with one of the beneficiaries being both gold and silver.
After dipping to a four year low earlier in the week, gold rallied 2.8 percent for the week, its biggest weekly gain since late January. In the physical markets, Chinese buying was steady, with premiums on the Shanghai gold Exchange staying at a robust $6 to $7 an ounce on Friday. Sustained physical buying could further support prices. In other industry news, six institutions will start setting gold prices electronically on Friday, as Intercontinental Exchange completes a sweeping change to London's bullion benchmarks and dispenses with the century-old gold "fix'.'The SPDR Gold Trust (ARCA:GLD), the world’s largest gold backed exchange traded fund, saw its first inflows since February 20th. I look for gold to retest the highs made prior to the March unemployment and 38.2 Fibonacci retracement from this month’s low at the 1205 level early next week.
