Gold Prices Sink as Markets Bet Trump Heralds Steeper Rate Hikes

Talking Points:

• Gold prices drop as markets bet Trump heralds steeper rate hikes
• Crude oil prices decline after IEA warns supply glut to continue
• Risk aversion may undermine WTI as gold searches for a lifeline

Gold prices continued to sink as expected as financial markets continued pricing in a steeper Fed rate hike path driven by the inflationary implications of policies expected to be undertaken by President-elect Donald Trump. The metal traded inversely of a rally in benchmark US Treasury bond yields, underscoring the reduced appeal of non-interest-bearing assets in the emerging narrative for the years ahead.

Crude oil prices declined after the IEA warned that a supply glut will probably persist in its monthly report despite OPEC efforts to cut production. Selling pressure may have been compounded by a latest reaction to the previous day’s release of DOE inventory figures that showed stockpiles grew more than expected last week. The data seemed to be overshadowed by outcome of the US election when it first came out.

Looking ahead, a deepening pullback in S&P 500 futures ahead of the opening bell on Wall Street suggests that some post-election exuberance may be unwound into the weekend, which may bode ill for the sentiment-linked WTI benchmark. The US Dollar is rising with benchmark lending rates however, warning that gold may continue to struggle. Still, a sustained risk-off push that caps yields may at least limit losses.

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GOLD TECHNICAL ANALYSIS – Gold prices are testing support at 1254.50, the 61.8% Fibonacci expansion, with a break below that on a daily closing basis exposing the 76.4% level at 1234.97. Alternatively, a reversal above the 50% Fib at 1270.28 targets the 38.2% expansion at 1286.06.

CRUDE OIL TECHNICAL ANALYSIS – The appearance of a Bullish Engulfing candlestick pattern coupled with positive RSI divergence hints crude oil prices may be bottoming. A daily close above the 50% Fibonacci retracement at 45.54 exposes the 46.51-47.04 area (trend line support-turned-resistance, 38.2% level). Alternatively, a push below the 61.8% Fib at 44.04 targets the 76.4% retracement at 42.18.

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

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