David Levenstein: Gold prices surged last week smashing through several key resistance levels including the psychologically important $1300 an ounce level.
Gold prices continued to advance last Friday for an eighth session in a row, gaining almost 5% for the week, fueled by a combination of increased physical demand, technical buying and economic jitters. And, on Monday, the price of spot gold hit $1329.70 per ounce, a 3-1/2 month high.
Market sentiment towards gold has been positive since the beginning of the year as weak U.S. economic data, and emerging market jitters have taken a toll on global equities, spurring demand for bullion – often seen at times of uncertainty as a safe haven.
Gold is up 10% this year after a 28% drop in 2013, while silver has gained more than 12%.
The price of the yellow metal has broken well above its 50 day moving average, has traded above the 100 day moving average and has also closed above the 200 day moving average as well as the key resistance of $1,300/oz. These positive signs suggest that the upside could continue.
The price of gold began last week on a firmer note and then after vacillating for most of the day on Tuesday, prices rallied after Federal Reserve Chair Janet Yellen pledged to continue to maintain the monetary policies set by her predecessor Ben Bernanke.
In her first testimony before Congress, Yellen said. “His leadership helped make our economy and financial system stronger and ensured that the Federal Reserve is transparent and accountable.”
When speaking about the economic recovery, monetary policy and the financial systems Yellen expressed optimism about developments in recent months, but also made it clear work must be done to meet the Federal Open Market Committee’s objectives for the economy.
With regard to the poor employment figures released last month as well as the month before that, she acknowledged that recovery in the labour market was “far from complete.” Echoing Bernanke’s insistence that the FOMC is looking to a 6.5% unemployment rate as a threshold rather than a trigger, Yellen added.
“The unemployment rate is still well above levels that Federal Open Market Committee (FOMC) participants estimate is consistent with maximum sustainable employment. Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labour market.”
Looking to the upcoming FOMC meeting in March, Yellen, said she and other members will take time to assess these reports, as well as the February jobs numbers and other data when determining their next move on asset purchases. Only a “notable” change in outlook would cause the FOMC to pause the current course and only a “deterioration” in outlook would cause it to increase the amount purchased.
On the subject of policy, Yellen reaffirmed her support of current strategy.