Gold Prices May Bounce as Markets Digest Post-Fed Volatility

2016-12-16 05:46:00

Talking Points:

Gold prices slide to ten-month low in FOMC meeting aftermath
Crude oil prices fall on Libya output boost but momentum fizzles
Rethink of the 2017 Fed policy bets may shape near-term trade

Gold prices continued to sink as markets grappled with the outcome of the FOMC monetary policy announcement. The central bank delivered a widely expected rate hike but went off the priced-in script in projecting three further increases in the baseline lending rate next year.

Crude oil prices dipped intraday but ultimately finished the day little-changed. The drop may have followed news that Libya will reopen two of its biggest extraction sites as well as send the shipment in two years from its largest export terminal.

Looking ahead, a lull in high-profile event risk may make for a quiet end to the trading week. A rethink of the post-FOMC narrative is also not out of the question. Markets clearly saw that Fed forecasts are not a guarantee in 2016 and much depends on still-uncertain US fiscal policy.

The emergence of this narrative just ahead of the year-end liquidity drain and with many benchmark assets looking somewhat stretched may stoke profit-taking. That has scope to boost gold prices. The implications for crude oil are less clear-cut as prices reconcile the influence of OPEC and that of the Fed.

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GOLD TECHNICAL ANALYSIS – Gold prices accelerated downward, hitting the weakest level since early February. From here, a daily close below the 50% Fibonacci expansion at 1112.37 exposes the 61.8% level at 1094.56. Alternatively, a reversal back above the 38.2% Fib at 1130.18 targets the 23.6% expansion at 1152.21.

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices paused to digest losses after dropping to the lowest level in a week. Near-term support is now at 49.78, the 38.2% Fibonacci retracement, with a break below that on a daily closing basis targeting the 50% level at 48.33. Alternatively, a move back above the 23.6% Fib at 51.58 exposes the 14.6% retracement at 52.58.