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Gold Prices Find Added Boost in Hard Brexit Worries

Gold Prices Find Added Boost in Hard Brexit Worries

2017-01-16 05:20:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Brexit add to “Trump trade” unwinding to boost gold prices
  • Crude oil prices suffered worst loss in two months last week
  • Looming event risk may limit follow-through in the near term

Gold prices continue to make hay of newfound skepticism about the so-called “Trump trade”, the idea that inflationary fiscal policy pursued by the incoming US administration will spur steeper Fed rate hikes. This narrative dominated markets in the final two months of 2016 but seems to have lost its luster in January as investors turn leery about taking bets on the basis of an economic platform that is almost entirely unknown.

Reducing Trump-inspired exposure got an added boost as “hard Brexit” fears gripped financial markets at the start of the trading week. In a rare showing, the metal rose alongside the US Dollar as policy considerations gave way to strict risk-off dynamics. Follow-through may depend on a much-anticipated speech form UK Prime Minister Theresa May on Tuesday but side-by-side trade may not survive into Mr. Trump’s inauguration by the week’s end.

Crude oil prices posted the worst drawdown in two months last week as markets turned dubious about lasting support from OPEC’s output cut scheme. Data from Baker Hughes showed the number of active US oil rigs fell for the first time in over two months last week. That this failed to give the WTI benchmark any meaningful boost appears telling of traders’ disposition.

With that in mind, comments from OPEC officials made on the sidelines of the World Future Energy Summit in Abu Dhabi may take center stage today. Significant trend development seems unlikely however as investors await monthly reports from the cartel (Wednesday) and the EIA (Thursday) which may put the supply/demand landscape in shaper relief.

Will gold and crude oil prices continue to rise in the first quarter of 2017? See our forecasts here!

GOLD TECHNICAL ANALYSISGold are attempting to overcome resistance in the 1193.55-99.80 area (38.2% Fibonacci retracement, May 30 low) once again. Confirmation of a breach on a daily closing basis sees the next upside barrier at 1215.40, the 50% level. Alternatively, a reversal below the 23.6%Fib at 1166.51 exposes the 14.6% retracement at 1149.85.

Gold Prices Find Added Boost in Hard Brexit Worries

CRUDE OIL TECHNICAL ANALYSISCrude oil prices may be poised to resume their advance after a brief pullback having put in a Bullish Engulfing candlestick pattern. A daily close above the 23.6% Fibonacci expansionat 53.75targets the 55.21-65 area (swing high, 38.2% level). Alternatively, a move back below resistance-turned-support at 52.44 exposes the 50.25-69 zone (38.2% Fib retracement, January 10 low).

Gold Prices Find Added Boost in Hard Brexit Worries

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

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