Gold prices to take their cues from US dollar strength next week

Forecasts for gold prices remain mixed with the yellow metal expected to take its cues from the US dollar's strength next week.

Gold and the greenback are expected to react to a raft of US data through the week, including revised US GDP data due out on 29 May.

Gold's safe-haven status could take a hit if the dollar logs further gains through the holiday-shortened week. The US markets will be closed on 25 May for the Memorial Day Holiday. Markets in the UK will be shut on Monday for the Spring Bank Holiday. Elsewhere, German, French and Swiss markets too will be shut on Monday, for the Whit Monday bank holiday.

The precious metal is also expected to react to US Federal Reserve interest rate hike expectations.

Of the 33 market experts polled by a Kitco News Survey, 19 responded this week. Eight participants were bearish on prices, six bullish and five neutral on prices. Experts include bullion dealers, futures traders and technical-chart analysts.

Meanwhile, of the 256 votes collected in a separate Kitco online survey, 104 participants, or 41%, said they expect higher gold prices next week. As many as 117 were bearish on prices, while 35 were neutral.

Bill Baruch, senior commodity broker at iiTrader.com, who is neutral on gold prices next week, told Kitco that "right now it is all about the king dollar".

Baruch said there was a risk that the greenback could move higher next week as people have become overly pessimistic about the US economy. He added that a rise in US first-quarter GDP estimates, on 29 May, could be the catalyst that drives the greenback above long-term resistance at 96.70, hitting gold in the medium-term.

However, Baruch also said that on a technical level, if the dollar index does not break above that level then it could be hit with some strong selling pressure as investors exit their long positions, which will be positive for gold.

Ken Morrison, editor of the online gold newsletter Morrison on the Markets, too said that gold's strength will depend a lot on the US dollar strength.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that despite the dollar strength earlier in the week, gold managed to hold on to the $1,200 level, which could help attract investors back into the marketplace.

Chris Beauchamp, senior market strategist at IG Markets, said although the US dollar had hurt gold's recent rally, he does not expect to see lower prices automatically.

Morrison said: "Predicated on an expectation the dollar will continue to slip to the downside in the week ahead, gold should trend higher in the week ahead.

"I believe it has a chance to takeout the $1230 resistance over the next 2-3 weeks."

Hansen said: "Given the very light positioning both in [exchange-traded funds] and futures the risk at the moment increasingly seems skewed to the upside."

Beauchamp: "I wouldn't get too keen shorting it before it breaks $1180, that's been big support in recent weeks. I think $1150 is still probable, but we need to clear out that downside support zone at $1180 first."

Gold drops

US gold futures for delivery in June finished 10 cents lower at $1,204 an ounce on 22 May.

Prices are down 1.7% on the week.

Spot gold traded at $1,206 an ounce on 22 May.

Capital Economics said in a note to clients: "...Commodities in general also ended the week on the defensive, pressured by renewed dollar strength after US CPI data showed the three-month annualised rate of core inflation rising to a four-year high of 2.6%."

Meanwhile, gold buying in Asia was slow this week, Reuters reported, with the Chinese hooked on surging equities. Demand in India too was weak.