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Gold May Rise as Dovish Fed-Speak Weighs on US Dollar

Gold May Rise as Dovish Fed-Speak Weighs on US Dollar

Ilya Spivak, Head Strategist, APAC

Gold prices may rise if dovish commentary from Boston Fed President Rosengren dents expectations of QE3 reduction and weighs on the US Dollar.

Talking Points

  • Crude Oil and Copper Outlook Clouded as Risk Trends Consider Fed QE Outlook
  • Gold, Silver May Rise if Fed’s Rosengren Pours Cold Water on QE3 Reduction Bets

Cycle-sensitive crude oil and copper prices are under pressure as risk aversion sweeps financial markets ahead of the opening bell on Wall Street. S&P 500 futures are trading firmly lower, hinting more of the same is likely ahead. Gold and silver are treading water in familiar ranges.

Looking ahead, the spotlight is on a speech from the Federal Reserve’s Eric Rosengren, who is scheduled to discuss the outlook for the US economy and take questions. Mr. Rosengren is a voting member of the rate-setting FOMC committee this year and traders will no doubt be keen to get his take on the probability of a cut-back in Fed asset purchases over the near term.

Given the Boston Fed President’s dovish credentials, there seems to be distinct possibility that his comments may pour cold water on calls QE3 reduction bets and weigh on the US Dollar. That has scope to boost gold and silveramid a pickup in anti-fiat demand. The impact of speculation about the timing of a decrease in Fed stimulus on risk trends remains uneven however, making for an uncertain outlook on oil and copper vis-à-vis Mr. Rosengren’s rhetoric.

Crude Oil Technical Analysis (WTI)- Prices bounce from support at 93.34, the May 10 low. Near-term resistance is at 96.85 a falling trend line set from mid-September 2012. A bearish Dark Cloud Cover candlestick pattern and negative RSI divergence argue in favor of a downside scenario however. A move below 93.34 initially exposes the May 15 bottom at 93.11.

Commodities_Gold_May_Rise_as_Dovish_Fed-Speak_Weighs_on_US_Dollar_body_Picture_3.png, Gold May Rise as Dovish Fed-Speak Weighs on US Dollar

Daily Chart - Created Using FXCM Marketscope 2.0

Gold Technical Analysis (Spot)- Prices completed a Bullish Engulfing candlestick pattern above support at 1348.97, the 38.2% Fibonacci retracement level, hinting at gains ahead. Initial resistance is at 1402.11, the 23.6% level, with a break above that targeting the 14.6% Fib at 1434.86 and the May 3 high at 1488.00. Alternatively, a move below support eyes the 50% expansion at 1306.02.

Commodities_Gold_May_Rise_as_Dovish_Fed-Speak_Weighs_on_US_Dollar_body_Picture_4.png, Gold May Rise as Dovish Fed-Speak Weighs on US Dollar

Daily Chart - Created Using FXCM Marketscope 2.0

Silver Technical Analysis (Spot)- Prices continue to consolidate above 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_Dovish_Fed-Speak_Weighs_on_US_Dollar_body_Picture_5.png, Gold May Rise as Dovish Fed-Speak Weighs on US Dollar

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, now at 3.363. A break above that initially targets the May 22 high at 3.418. Near-term support is at 3.275, the 38.2% Fibonacci retracement.

Commodities_Gold_May_Rise_as_Dovish_Fed-Speak_Weighs_on_US_Dollar_body_Picture_6.png, Gold May Rise as Dovish Fed-Speak Weighs on US Dollar

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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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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