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Gold May Rise as Fed Dents QE3 Reduction Bets

Gold May Rise as Fed Dents QE3 Reduction Bets

Ilya Spivak, Head Strategist, APAC

Gold may rise on recovering anti-fiat demand as minutes from the last FOMC meeting and Ben Bernanke’s testimony dent bets on a reduction in the size of QE3.

Talking Points

  • Gold, Silver May Rise as Bernanke, FOMC Minutes Support QE Status Quo
  • Crude Oil, Copper Wait for Risk Sentiment to Weigh Up Fed Policy Outlook

The spotlight remains on Federal Reserve monetary policy as Chairman Ben Bernanke testifies before a joint Congressional committee on the outlook for the US economy. Later in the day, the central bank will also release minutes from the April/May FOMC meeting.Markets will be keen to parse commentary for clues about a possible reduction in the size of monthly asset purchases.

While the Fed is not in close proximity to the thresholds it set on unemployment and inflation expectations in December, concerns about the market structure implications of a buying $85 billion in paper each month have started to seep into official commentary. The adverse reputational risks of pulling back on stimulus without a shroud of discernibly improving economic conditions seem likely to keep the FOMC from switching gears for now however.

Such an outcome seems likely to disappoint FX markets and stands to weigh on the US Dollar while boosting gold and silver on the back of recovering anti-fiat demand. The implications for risk appetite – and by extension for cycle-sensitive crude oil and copper prices – are less clear-cut.

On one hand, investors may cheer the prospect of continued stimulus-driven levitation of asset prices. On the other, the mood may turn sour as they are reminded the world’s strongest economy remains too frail to be taken off life-support. Whatever the response will be, it ought to be telling of where the markets’ own perceptions of the global recovery, helping to handicap incoming news-flow over the days ahead.

Crude Oil Technical Analysis (WTI) - Prices put in a bearish Dark Cloud Cover candlestick pattern below resistance at the 97.00 figure, a level marked by a falling trend line set from early January and the 76.4% Fibonacci expansion, hinting a move lower is ahead. Near-term support is at 95.68, the 61.8% level, with a break below that targeting the 50% Fib at 94.62. Alternatively, a move above 97.00 aims for the 100% level at 99.14.

Commodities_Gold_May_Rise_as_Fed_Dents_QE3_Reduction_Bets_body_Picture_3.png, Gold May Rise as Fed Dents QE3 Reduction Bets

Daily Chart - Created Using FXCM Marketscope 2.0

Gold Technical Analysis (Spot) - Prices broke above resistance in the 1375.16-77.33 area and completed a Bullish Engulfing candlestick pattern, hinting at further gains ahead. Initial resistance is at 1401.63, with a break above that targeting 1421.26. Alternatively, a reversal back beneath 1375.16 exposes 1340.31.

Commodities_Gold_May_Rise_as_Fed_Dents_QE3_Reduction_Bets_body_Picture_4.png, Gold May Rise as Fed Dents QE3 Reduction Bets

Daily Chart - Created Using FXCM Marketscope 2.0

Silver Technical Analysis (Spot) - Prices are testing support at 22.03, the 38.2% Fibonacci retracement. A break below that targets the 50% level at 21.17. Near-term resistance is at 23.10, the 23.6% Fib, with a turn back above that eyeing the April 26 high at 24.82.

Commodities_Gold_May_Rise_as_Fed_Dents_QE3_Reduction_Bets_body_Picture_5.png, Gold May Rise as Fed Dents QE3 Reduction Bets

Daily Chart - Created Using FXCM Marketscope 2.0

Copper Technical Analysis (COMEX E-Mini) - Prices may be carving out a Head and Shoulders (H&S) bottom chart formation. Confirmation is needed on a close above the pattern’s neckline, a barrier reinforced by the 61.8% Fibonacci retracement at 3.388. A break above that initially targets the 76.4% level at 3.469. Near-term support is at 3.322, the 50% Fib. If confirmed, the H&S setup implies an upside target at 3.781.

Commodities_Gold_May_Rise_as_Fed_Dents_QE3_Reduction_Bets_body_Picture_6.png, Gold May Rise as Fed Dents QE3 Reduction Bets

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for

To contact Ilya, e-mail Follow Ilya on Twitter at @IlyaSpivak

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