Gold Rises 2% on Week; First Weekly Win in Five

© Reuters.

By Barani Krishnan

Investing.com -- Gold prices rose 2% on the week to give longs in the game their first weekly win in five.

While they may have secured a break from their gloom which began in mid-April, bulls in bullion still appeared to be on a knife's edge given the dollar’s potential to reprise 20-year highs, analysts cautioned.

Typical with its contrasting fashion to gold, the Dollar Index, which pits the greenback against six other major currencies, posted its first weekly decline in six. At Friday’s level of 103.23, the index wasn’t too far from the week-ago peak of 105.06, which marked a high since 2000.

Another bugbear for gold longs: bond yields.

The yield on the benchmark 10-year U.S. Treasury note has moved down to 2.79% from May peaks of 3.2% on expectations that forthcoming U.S. rates by the Federal Reserve in June and July will be capped at a half-percentage point each round, instead of the initially-speculated three-quarter point. Yet, with rate expectations often moving on a dime, yields could jump too.

“The second half of the week has been kind to gold as the trepidation in financial markets has shifted slightly from the pace of monetary tightening to recession risks,” said Craig Erlam, analyst at online trading platform OANDA. “So rather than higher yields and a stronger dollar weighing on the yellow metal, we've seen investors pouring into safe havens which have lowered yields slightly and lifted gold.”

Front-month gold futures for June on Comex settled at $1,842.10 per ounce, up just 90 cents, or less than 0.1%, on the day. Week-to-date though, June gold was up almost $34 or 1.9%.

It was a tumultuous week for futures of the yellow metal which plunged on Monday to $1,785, its lowest level since the Jan. 28 bottom of $1,779.70.

Erlam said it was tough to make a call on whether gold could extend its current rebound based on expectations that upcoming Fed hikes had been baked into the cake.

“Whether that will be sustained in this hiking environment will be interesting and ultimately depend on just how real and significant the economic fears are,” he said. “At the end of the day, rate hikes should lower demand but so should a recession. If the latter continues to be viewed as a likely outcome of the former, gold could see its fortunes improve further.”

Sunil Kumar Dixit, chief technical strategist at skcharting.com, concurred with that view.

"Gold bulls should target the $1867 and $1892 levels next, which would be a validation for the 61.8% Fibonacci fibonacci level of $1,917," said Dixit. "But they should also beware that weakness below the $1,836-$1,825 support can negate the rebound and trigger downward pressure to $1,800-$1,780. The reaction to $1,850, when it comes, will be critically important."