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Gold Prices Digesting Oil-Linked Drop, Inventory Data Eyed Ahead

Gold Prices Digesting Oil-Linked Drop, Inventory Data Eyed Ahead

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Gold prices in digestion mode after largest daily drop in 7 weeks
  • Crude oil prices erase earlier losses on Saudi oil minister change
  • Weekly EIA inventory figures headline otherwise quiet calendar

Gold prices are treading water after suffering the largest daily drawdown in seven weeks. The slump mirrored a rally in the US Dollar. This seems reasonable enough: not only is the yellow metal denominated in terms of USD, meaning the greenback’s rally inherently weighs on prices, but gold’s role as an alternative store of value to paper currency positions it in opposition to the benchmark fiat asset.

For its part, the US unit traded higher alongside US Treasuries bond prices, pointing to demand for the go-to safe haven asset as the catalyst for the currency’s advance. A flat day on the S&P 500 – a proxy for market-wide sentiment trends – argues against broad-based risk aversion. However, the likewise cycle-sensitive crude oil prices traced out near-perfect inverse performance to Treasuries, falling the most in a month.

This suggests investors were indeed unnerved, with jitters potentially linked to uncertainly on the heels of an announcement that Saudi Arabia’s long-serving oil minister Ali al-Naimi has been replaced with Aramco Chairman Khalid al-Falih.

The move hardly seems to mark a departure from established policy trends however, with Mr. al-Falih likely to continue Saudi Arabia’s relentless push to maintain market-share with record-level output. Indeed, the WTI contract promptly erased losses in the subsequent session. Perhaps most interestingly, the overall narrative gives lie to the idea that gold necessarily trades as a safe-haven asset.

Looking ahead, the EIA weekly report on US crude oil inventories headlines an otherwise quiet economic calendar. An 80k increase is expected, marking the smallest build in a month. Private-sector estimates from the American Petroleum Institute (API) hinted at accelerating stockpile growth over the same period however, hinting at the possibility of an upside surprise that may weigh on prices.

Are crude oil and gold trends matching DailyFX analysts’ 2Q forecasts? Find out here!

GOLD TECHNICAL ANALYSISGold prices recoiled from resistance in the 1294.26-1307.49 area, marked by the January 22, 2015 high, the 38.2% Fibonacci expansion and a rising channel top. From here,a daily close below the 23.6% levelat 1261.70 exposeschannel floor support at 1231.54. Alternatively, a push above the formidable upsidebarrier targets the 50% Fib at 1324.58.

Gold Prices Digesting Oil-Linked Drop, Inventory Data Eyed Ahead

CRUDE OIL TECHNICAL ANALYSISCrude oil prices are in consolidation mode above the 43.00 figure after establishing a top marked by a bearish Evening Star candlestick pattern. A break below the May 10 low at 43.01 exposes the 23.6% Fibonacci retracement at 41.86. Alternatively, a push above range resistance marked by the 14.6% Fib expansion at 44.69 targets the 23.6% threshold at 45.73.

Gold Prices Digesting Oil-Linked Drop, Inventory Data Eyed Ahead

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

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

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