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Gold to Follow Crude Oil Higher on Dovish FOMC Outcome

Gold to Follow Crude Oil Higher on Dovish FOMC Outcome

2013-03-20 10:22:00
Ilya Spivak, Head Strategist, APAC
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Gold prices may follow an overnight rebound in crude oil as a dovish Federal Reserve policy announcement drives demand for precious metals.

Talking Points

  • Crude Oil, Copper Rise as Cyprus Bank Levy Rejection Boosts Risk Trends
  • Gold and Silver to Find Support as US Dollar Weakens on Dovish FOMC

Crude oil and copper are on the upswing as risk sentiment firms in European trade, pulling the cycle-sensitive commodities higher. The chipper mood seems to reflect a sigh of relief around the markets after Cyprus rejected an EU bailout deal that included a controversial levy on bank deposits which – if approved – threatened to spark bank runs around the Eurozone periphery.Gold and silver are treading water as the spotlight shifts to the US and the FOMC policy announcement.

Investors appear to have treated supportive US economic news as limiting the scope for Federal Reserve asset purchases over recent weeks. That seems to contradict the markets’ own consensus forecasts for US growth, inflation and unemployment however. A poll of private-sector economists from Bloomberg shows they expect US growth to slow to 1.9 percent this year from 2.2 percent in 2012 while the jobless rate prints at 7.7 percent and inflation holds at 1.8 percent, well off the Fed’s “Evans rule” parameters for unwinding stimulus.

With that in mind, even a familiarly dovish FOMC outing seems to have scope to jolt traders back to the realization that the Federal Reserve is in no hurry to taper asset purchases. That has is likely to be supportive for risk appetite and encourage further gains in cruel oil and copper prices. Indeed, S&P 500 futures are already tracking meaningfully higher ahead of the opening bell on Wall Street and hinting at well-supported sentiment trends. It likewise stands to weigh on the US Dollar and boost demand for anti-fiat assets, offering broad-based support to the precious metals space.

WTI Crude Oil (NY Close): $92.16 // -1.58 // -1.69%

Prices reversed lower to test support at the 92.00 figure, marked by the 23.6% Fibonacci expansion. A break beneath that exposes the 38.2% level at 90.73. Near-term resistance is at 94.07, the March 19 swing high.

Commodities_Gold_to_Follow_Crude_Oil_Higher_on_Dovish_FOMC_Outcome_body_Picture_3.png, Gold to Follow Crude Oil Higher on Dovish FOMC Outcome

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1612.75 // +7.12 // +0.44%

Prices continued higher as expected after edging above resistance at 1604.87, the 38.2% Fibonacci retracement, will buyers eyeing the 50% level at 1620.28. A further push above that aims for the 61.8% Fib at 1635.68. The 1604.87 mark has been recast support, with a turn back beneath that eyeing the 23.6% retracement at 1585.81.

Commodities_Gold_to_Follow_Crude_Oil_Higher_on_Dovish_FOMC_Outcome_body_Picture_4.png, Gold to Follow Crude Oil Higher on Dovish FOMC Outcome

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $28.90 // +0.02 // +0.08%

Prices continue to consolidate above support at 28.46, the 23.6% Fibonacci expansion. Near-term resistance is in the 29.42-92 area, with a break higher exposing a falling trend line now at 30.39. Alternatively, a reversal below support targets the 38.2% level at 27.86.

Commodities_Gold_to_Follow_Crude_Oil_Higher_on_Dovish_FOMC_Outcome_body_Picture_5.png, Gold to Follow Crude Oil Higher on Dovish FOMC Outcome

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.406 // -0.022 // -0.64%

Prices are testing above support-turned-resistance at 3.415, the 50% Fibonacci expansion. A break back above that on a daily closing basis exposes the 38.2% level at 3.453. Near-term support is at 3.378, the 61.8% level.

Commodities_Gold_to_Follow_Crude_Oil_Higher_on_Dovish_FOMC_Outcome_body_Picture_6.png, Gold to Follow Crude Oil Higher on Dovish FOMC Outcome

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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