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Comex Gold Regains Ground As Yellen Speaks

By Allen Sykora and Debbie Carlson of Kitco News
Tuesday February 11, 2014 12:10 PM

(Kitco News) - Gold futures are firmer in late-morning Tuesday dealings, regaining ground lost earlier in the session when written testimony from new Federal Reserve Chairwoman Janet Yellen hinted that policy-makers will continue to taper their bond-buying program known as quantitative easing.

Some market watchers said gold was able to rebound on a combination of buying back of previously sold positions and bullish technical charts, which may have had more to do with pushing gold back to session highs than anything Yellen said.

As of 11:24 a.m. EST, gold for April delivery was $13 higher to $1,287.70 per ounce.

The April contract hit a two- and one-half-month high on the Comex division of the New York Mercantile Exchange about half an hour before the release of Yellen’s prepared testimony for the House Financial Services Committee, but then pared gains soon afterward.

When Yellen appeared before committee members, gold drifted back to its highs.

The new Fed chief indicated tapering is likely to continue if the economic recovery remains on track, although she also said there was not a preset course for the scale-back of quantitative easing. Going into her testimony, market participants were watching to see if there would be any signs that the Fed might stop tapering after two weak monthly employment reports in a row, although most economists and strategists did not expect the Fed to alter its course yet.

“Rates are going to be at the bottom for some time. That’s certainly bearish for the U.S. dollar and bullish for commodities,” said Sean Lusk, director of commercial hedging at Walsh Trading.

Lusk said technical chart patterns are supportive for gold, as is the dollar weakness and the strength in another key commodity, crude oil, which has topped $100 a barrel Tuesday.

Earlier in the day, a New York desk trader chalked up the morning pullback to Yellen’s comments, although calling the moves in this and other markets “knee-jerk” reactions.

“What she said is they expect to continue to roll back the bond purchases,” the trader said. “So the dreaded tapering is still scheduled. That’s what knocked the gold down.”

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Kevin Grady, owner of Phoenix Futures and Options LLC on the Comex floor, said gold could be in for a “very tentative day” and the market’s reaction to Yellen could be a “work in progress.”

He said strong physical buying has occurred under the market, and there appears to be a shift in Comex open interest from funds being short to being neutral to long.

“We need to watch how this (Yellen’s speech) plays out,” Grady said. “We’ve seen some price appreciation and we could run into resistance if we get over $1,300. The $1,306 level is the 200-day moving average.

“But you see physical buying dry up when you go higher, so I think we’re going to have a very hard time going higher. We’ll climb a wall of worry from $1,306 to $1,325. There’s really big resistance there.

“We have had nine days of higher lows, which is positive. The charts look strong and we had high volume, but I don’t know if it can be sustained.
Gold’s done well; a lot of people came in when the stock market was crushed 7% after being up 30%.”

Lusk concurred. He said gold is acting like it wants to test $1,300, but like Grady, he’s unsure whether or not gold can hold the gains.

Frank Lesh, broker and futures analyst with FuturePath Trading, said a combination of short covering and new buying seems to be propelling gold higher. He said the movement in gold is probably less due to what Yellen is saying than specific factors in the gold market.

“The shorts didn’t want it above $1,280, so they’re covering. Big stops were uncovered. Momentum buying is also here. The weaker dollar helps,” he said.

He said Yellen’s comments are similar to what she’s said in the past, which is why other factors are supporting gold Tuesday.

Another New York trader said the market remains on firmer footing after building on its recent technical-chart-based gains. He cited continued demand around the globe, in particular mentioning news reports early this week that Chinese consumption jumped 41% to 1,176.4 metric tons in 2013.

“The market has been moving up,” he said. “It’s been technically strong for some weeks now, and the last couple of days especially.”

Lesh said the Chinese-buying news is supporting gold. But like Grady, he wonders if the physical buying gold’s received will remain if gold prices move above $1,300.

“The one question I have is about physical buying. Physical buyers are very price sensitive. They’re not known to chase prices higher. A 13-handle ($1,300) could scare them off,” he said.

By Allen Sykora and Debbie Carlson; asykora@kitco.com and dcarlson@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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