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Gold Prices Attempt Recovery as "Trump Trade" Retraces

Gold Prices Attempt Recovery as "Trump Trade" Retraces

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Gold prices attempt recovery after hitting nine-month low
  • Crude oil prices drop on fading hope for output cut deal
  • Trump cabinet appointments, OPEC commentary in focus

Gold prices are attempting a recovery after touching a nine-month low in Friday’s trade. The move is accompanied by a parallel decline in the US Dollar and US front-end yields as implied in 2-year Treasury futures. This hints at moderation in the Fed rate hike outlook as the catalyst behind the returning appeal of anti-fiat and non-interest-bearing assets, including the yellow metal.

The apparent absence of a discrete catalyst suggests the move may be corrective after two weeks of heavy gold selling in the wake of the US presidential election. Investors have speculated that expansionary fiscal policy advocated by President-elect Trump will be inflationary, requiring the US central bank to adopt a more aggressive tightening trajectory.

Looking ahead, a quiet US economic data docket will probably keep politics at the forefront. The naming of key economic policy officials to the Trump cabinet remains an important area of interest as markets anxiously wait to see who will take the reins on implementing the incoming President’s agenda. Confidence-inspiring appointments may breathe new life into the so-called “Trump trade”, punishing gold anew.

Crude oil prices slumped following the abrupt cancellation of a Monday meeting between OPEC and non-OPEC producers Monday after Saudi Arabia pulled out of attendance. Separately, Reuters reported Saudi Energy Minister Khalid Al-Falih saying that “encouraging” demand may allow energy markets to balance even without a planned OPEC output cut unveiled in September.

The apparent setback in negotiations comes just days before implementation details of the supply reduction are meant to be unveiled at a formal OPEC meeting on November 30 in Vienna. Riyadh is reportedly pushing for all cartel members to share in cutting output whereas countries like Iran and Iraq have demanded exemptions.

Headline risk remains considerable in the near term. Officials from other OPEC countries have scrambled to fortify the markets’ confidence in a deal emerging this week but already skeptical investors will probably prove difficult to mollify. Price action is likely to remain highly sensitive to pronouncements from the relevant parties, making for jittery trading conditions.

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GOLD TECHNICAL ANALYSISGold prices are digesting losses after slipping below the $1200/oz figure. A daily close below the 123.6% Fibonacci expansion at 1171.83 exposes the 138.2% level at 1152.30. Alternatively, a move back above the 100% Fib at 1203.40 targets the 76.4% expansion at 1234.97.

CRUDE OIL TECHNICAL ANALYSISCrude oil may be resuming the down moved launched in mid-October after a brief corrective recovery. Near-term support is at 45.45, the 38.2% Fibonacci expansion, with a daily close below that exposing the 50% level at 44.31. Alternatively, a move back above the 23.6% Fib at 46.87 targets the 14.6% expansion at 47.75.

--- 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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