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Gold Prices May Turn Lower Anew on Pro-Taper Fed Commentary

Gold Prices May Turn Lower Anew on Pro-Taper Fed Commentary

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Hawkish Fed-Speak May Overshadow a Slowdown in US Retail Sales
  • Gold May Turn Lower if Plosser, Fisher Talk Up “Tapering” Fed QE
  • Crude Oil Breaks November Low But Near-Term Outlook is Clouded

“Fed-speak” remains in focus today. Yesterday’s hawkish remarks from Atlanta Fed President Dennis Lockhart failed to prevent a breakdown of the US Dollar, allowing gold to continue building upward. A similar tone from today’s remarks by Charles Plosser and Richard Fisher – presidents of the Philadelphia and Dallas Fed branches respectively – may carry a bit of added weight however. Unlike Lockhart, both are voting members of the rate-setting FOMC committee in 2014, so remarks supportive of continued tapering of QE asset purchases may offer a lifeline to the greenback and weigh on precious metals.

On the data front, traders will be watching December’s US Retail Sales report. Economists’ forecasts point to a 0.1 percent increase from November, marking the softest outcome in three months. While a slowdown in retail activity during a holiday-heavy month of the year doesn’t bode well, the release may not generate a lasting response in and of itself.

Many of the arguments made to explain December’s miss on nonfarm payrolls – especially those of the weather-related variety – can be applied to a drop in receipts growth as well. With that in mind, a slowdown won’t necessarily offer anything new into the conversation and may be overshadowed by the aforementioned commentary from Fed officials if they opt for a hawkish lean.

Meanwhile, crude oil traded lower yesterday as expected, moving downward alongside the S&P 500. The correlation between the WTI contract and the benchmark stock index now stands at the highest in seven weeks (0.54 on 20-day percent change studies), hinting prices are likely to continue following broad-based sentiment trends. Where that might take crude today is somewhat unclear however, with US stock index futures flat ahead of the opening bell on Wall Street.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index.

CRUDE OIL TECHNICAL ANALYSIS Prices fell as expected after putting in a Bearish Engulfing candlestick pattern. A break below 91.74 – the November 27 swing low – has exposed the 50% Fibonacci expansion at 90.50. A further push beneath that aims for the 61.8% level at 88.08. Reversing back above 91.74 and the 38.2% Fib at 92.91 aims for the 23.6% expansion at 95.90.

Gold_Prices_May_Turn_Lower_Anew_on_Pro-Taper_Fed_Commentary_body_Picture_3.png, Gold Prices May Turn Lower Anew on Pro-Taper Fed Commentary

GOLD TECHNICAL ANALYSIS Prices turned higher as expected after putting in a Harami candlestick pattern. A break above resistance at 1248.70, the 38.2% Fibonacci expansion, has exposed the 1261.28-70.28 area (marked by bracketed by the October 11 swing low and the 50% level). A further push beyond that targets the 61.8% Fib at 1291.86. Turning back below 1248.70 aims for the 23.6% retracement at 1222.01.

Gold_Prices_May_Turn_Lower_Anew_on_Pro-Taper_Fed_Commentary_body_Picture_4.png, Gold Prices May Turn Lower Anew on Pro-Taper Fed Commentary

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

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