Gold Prices May Rise as Fed Clings to Status Quo After Rate Hike

Talking Points:

• Gold prices holding range as FOMC rate decision nears
• Status-quo Fed may punish US Dollar, send gold higher
• Crude oil prices seesaw on Saudi output boost, API data

Gold prices edged lower as the US Dollar recovered from post-NFP losses but remained well within their near-term range. Traders were probably reluctant to commit to significant trend progression ahead of the upcoming FOMC policy announcement.

The priced-in probability of a rate hike implied in Fed funds futures stands at 100 percent. This means the increase itself may have limited market-moving potential, putting the spotlight on a revised set of economic and rate path projections as well as a press conference with Chair Yellen.

US economic conditions have been relatively stable since the beginning of the year. Furthermore, Fed officials continue to operate in an environment marred by considerable fiscal policy uncertainty. On balance, this suggests they will opt against major changes in forecasts or rhetoric.

The markets’ response to last week’s jobs data may be a blueprint for such an outcome. The figures sustained the status quo but did not advance the case for a still-steeper tightening path. That registered as a disappointment and sent the greenback lower as gold rose. More of the same may be in store this time.

Crude oil prices dropped to set a new three-month low after an OPEC report showed Saudi Arabia boosted output in February. Kingdom officials said the increase was meant to refill stockpiles and claimed shipments continued to fall but traders still worried that the cartel’s supply reduction deal may be unraveling.

The WTI benchmark swiftly erased intraday losses after API said US inventories fell by 531k barrels last week. Official DOE figures are expected to show a build of 3.25m barrels over the same period. If confirmed, that might rekindle selling pressure while a print closer to the API estimate may give prices a further boost.

The monthly report from the IEA is also due and may offer a contrasting view of February’s OPEC supply trends compared to what was on offer in the cartel’s own accounting. Further evidence pointing to ebbing output cut compliance may spur on the bears.

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GOLD TECHNICAL ANALYSIS – Gold prices put in a top as expected after putting in a bearish Dark Cloud Cover candlestick pattern. Near-term support is now at 1181.92, the 38.2% Fibonacci expansion. A daily close below that targets the 50% level at 1156.61. Alternatively, a move back above support-turned-resistance at 1218.90 exposes the 14.6% Fib at 1232.55 anew.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices probed below the $48/bbl figure but failed to hold there once again. A daily close below the 50% Fibonacci retracement at 47.22 paves the way for a test of the 61.8% level at 45.33. Alternatively, a recovery above the 38.2% Fib at 49.11 sees the next upside barrier marked by the 23.6% retracement at 51.44.

Chart created using TradingView

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

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