Gold Prices May Fall on FOMC as Crude Oil Gains on China Data

Talking Points:

• Gold prices stall at resistance after largest advance in four months
• Crude oil prices push upward but fail to overcome range resistance
• Risk appetite trends at the forefront, Eurozone GDP revision on tap

Gold prices have stalled after mounting a sharp recovery after May’s dismal US jobs report crushed Fed rate hike bets, boosting demand for anti-fiat and non-interest-bearing assets. Thin US economic news-flow and a lull in Fed-speak ahead of next week’s FOMC policy announcement leave the metal without a readily apparent fundamental catalyst. This may open the door for a correction lower in the days ahead as traders look to rebalance exposure toward a more neutral stance before the rate decision crosses the wires.

Crude oil prices pushed higher, pushing to an eight-month high. The move began against a backdrop of swelling risk appetite, with the sentiment-linked WTI contract following stock prices upward. Shares would give up most gains by the closing bell on Wall Street but oil remained well-supported after API said stockpiles fell last week while the EIA raised its short-term demand outlook to an average of 9.5 million barrels in the second and third quarters, up from 9.48 million projected last month.

Official weekly inventory figures are now in focus, with a 3.14 billion barrel drawdown expected. Needless to say, a drop that exceeds the consensus forecast is likely to boost oil prices while a smaller one stands to have the opposite effect. Risk appetite trends remain an important consideration. S&P 500 futures are pointing cautiously lower overnight, hinting a slight risk-off bias, but an upbeat set of Chinese trade figures may rekindle optimism. The report showed imports surged 5.1 percent year-on-year (in CNY terms), the most since September 2014, which may hint at firming demand in the world’s second-largest economy.

GOLD TECHNICAL ANALYSIS – Gold prices continue to tread water having rallied as expected after carving out a Bullish Engulfing candlestick pattern. A daily close above channel floor support-turned-resistance at 1246.30 opens the door for a test of a horizontal pivot at 1262.60. Alternatively, a move below the 38.2% Fibonacci expansion at 1203.82 sees the next downside barrier at 1172.99, the 50% level.

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices edged above resistance at 49.91, the 14.6% Fibonacci expansion, to narrowly establish a foothold above the $50/barrel figure. From here, a daily close above the 23.6% levelat 51.16 exposes the 38.2% Fib at 53.44.Alternatively, a turn back below 49.91 – now recast as support – paves the way for a retest of the June 1 low at 47.73.

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

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