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Gold Plunges as Fed QE Reduction Bets Scatter Demand

Gold Plunges as Fed QE Reduction Bets Scatter Demand

Ilya Spivak, Head Strategist, APAC

Gold prices plunged to their lowest level in close to three years as supportive US economic data drive Fed QE reduction bets. Revised GDP figures are ahead.

Talking Points

  • Gold, Silver Plunge as Anti-Fiat Demand Evaporates on Fed QE Taper Bets
  • Oil and Copper to Follow Precious Metals Lower if US GDP Outperforms

Gold and silver are trading sharply lower in the aftermath of yesterday’s strong set of US economic data. Prices began to plunge early in the Asian session and have remained under pressure through European hours as signs of firming US economic recovery bolster the case for a relatively sooner move to reduce monthly asset purchases by the Federal Reserve. This is chipping away at demand for assets seen as a hedge against the dilution effects of monetary stimulus on paper currencies. Indeed, total gold ETF holdings – a proxy for investment demand – are now at their lowest in over three years.

Looking ahead, all eyes are on the third revision of first-quarter US GDP figures. Expectations call for the annualized economic growth rate to print at 2.4 percent, in line with prior estimates. A revision upward is likely to be perceived as further encouraging the FOMC to begin tapering the QE program, compounding downward pressure on precious metals. Recent price action suggests such an outcome may likewise hurt risk appetite, punishing sentiment-geared crude oil and copper prices. Needless to say, a revision downward may yield the opposite response.

Crude Oil Technical Analysis (WTI)- Prices put in a bullish Piercing Line candlestick pattern above support at a rising trend line set from mid-April, hinting a rebound may be ahead. Initial resistance is at 95.88, the 23.6% Fibonacci expansion, with a break above that exposing the 38.2% level at 97.87. Alternatively, move beneath trend line support (now at 93.85) exposes an upward-sloping barrier set from the May 1 low at 92.09, followed by the June 3 bottom at 91.23.

Commodities_Gold_Plunges_as_Fed_QE_Reduction_Bets_Scatter_Demand__body_Picture_3.png, Gold Plunges as Fed QE Reduction Bets Scatter Demand

Daily Chart - Created Using FXCM Marketscope 2.0

Gold Technical Analysis (Spot)- Prices are testing below the 100% Fibonacci expansion at 1273.77 to challenge the 123.6% level at 1238.38. A break below that eyes the 138.2% Fib at 1216.49. Alternatively, a move back above 1273.77 sees resistance at 1309.16, the 76.4% expansion.

Commodities_Gold_Plunges_as_Fed_QE_Reduction_Bets_Scatter_Demand__body_Picture_4.png, Gold Plunges as Fed QE Reduction Bets Scatter Demand

Daily Chart - Created Using FXCM Marketscope 2.0

Silver Technical Analysis (Spot)- Prices are testing below support at 19.66, the 76.4% Fibonacci expansion, to challenge the 100% level at 18.53. A break below that exposes the 123.6 Fib at 17.40. Alternatively, a move back above 19.66 aims for the 61.8% expansion at 20.36.

Commodities_Gold_Plunges_as_Fed_QE_Reduction_Bets_Scatter_Demand__body_Picture_5.png, Gold Plunges as Fed QE Reduction Bets Scatter Demand

Daily Chart - Created Using FXCM Marketscope 2.0

Copper Technical Analysis (COMEX E-Mini)- Prices are testing support at 3.024, the 50% Fibonacci expansion, with a break lower exposing the 61.8%level at 2.936. Initial resistance is at 3.112, the 38.2% Fib. A reversal above that targets the 23.6% expansion at 3.221.

Commodities_Gold_Plunges_as_Fed_QE_Reduction_Bets_Scatter_Demand__body_Picture_6.png, Gold Plunges as Fed QE Reduction Bets Scatter Demand

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for

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