Gold Prices Narrowly Avoid Breakdown as Fed Rate Hike Bets Swell

2017-03-02 05:30:00

Talking Points:

Gold prices rebound on PCE data but upside momentum meek
Crude oil prices drop as EIA inventory data points to oversupply
Lull in top-tier news may see consolidation before Yellen speech

Gold prices rebounded from session lows put in amid the return of the “Trump trade” as the PCE gauge of US inflation – the Fed’s favored price growth measure – undershot expectations. The on-year rate registered at 1.9 percent, falling short of the 2 percent result expected by economists. US Treasury bond yields established a top and the US Dollar corrected lower after the data crossed the wires, boosting the relative appeal of non-interest-bearing and anti-fiat assets including the yellow metal.

The move was short-lived however – allowing gold to retrace a bit after an otherwise painful session but offering no fuel for a meaningful advance – as upbeat ISM data and hawkish comments from Fed Governor Brainard crossed the wires. The FOMC’s most vocal dove said a rate hike “will likely be appropriate soon”, bolstering the recent swell in the priced-in likelihood of an increase this month. The markets now see that probability at 84 percent, up from just 38 percent a week ago.

Crude oil prices traded lower despite a slightly smaller than expected weekly gain in inventories reported by the EIA. Stockpiles added 1.5 million barrels, less than the projected 1.6 million barrel increase, but the broad spectrum of data on offer painted a dismal picture. Inventories rose for an eighth consecutive week to put total stockpiles at the highest level on record (520.2 million barrels) even as refinery utilization jumped to a three-month high. That points to deep oversupply and hints OPEC’s production cut scheme may be overpowered.

Looking ahead, a lull in top-tier economic data flow and US central bank officials’ commentary may offer a bit of space for consolation before markets turn their attention to a speech from Fed Chair Yellen on Friday. Sideline commentary from the Nigeria Oil and Gas Conference – a gathering that includes several notable OPEC bigwigs – and Russian crude output statistics may deliver a bit of activity as markets continue to search for supply outlook clues.

Are crude oil and gold prices matching DailyFX forecasts so far in 2017? Find out here !

GOLD TECHNICAL ANALYSIS – Gold prices edged lower as expected after putting in a bearish Dark Cloud Cover candlestick pattern. A daily close below the 1242.12-45.35 area (trend line, 23.6% Fibonacci expansion) exposes resistance-turned-support at 1218.90. Alternatively, a push above the 38.2% level at 1263.15 targets the 50% Fib at 1277.53.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices broke lower from a choppy consolidation range, hinting at a possible double top at January's swing high. From here, a daily close below rising trend line support at 52.37 exposes the 38.2% Fibonacci retracement at 50.25. Alternatively, a move back above support-turned-resistance at 53.81, the 23.6% Fib expansion, targets the 55.21-71 area (January 3 high, 38.2% expansion).