Gold Prices Drop as US GDP Data Revives Fed Rate Hike Bets

2017-03-31 05:54:00

Talking Points:

Gold prices drop as US GDP data rekindles Fed rate hike speculation
Markets’ renewed sensitivity to US economic data puts PCE in focus
Crude oil prices eye EIA monthly report, rig count figures after surge

Gold prices suffered the largest drop in a month as the US Dollar rose alongside Treasury bond yields, sapping demand for anti-fiat and non-interest-bearing assets. The priced-in Fed rate hike outlook firmed, with the year-end level for the target Fed Funds rate implied in futures prices rising by the most in two weeks.

The move followed an unexpectedly large upside revision on fourth-quarter US GDP figures. The annualized growth rate was nudged up to 2.1 percent from 1.9 percent in the prior assessment. Economists were expecting a shallower upgrade to 2 percent.

Perhaps most significantly, price action after the GDP release suggests markets are becoming responsive to upbeat US economic news-flow once again. That may herald deeper losses if the upcoming release of PCE inflation data – the Fed’s favored price growth gauge – also tops consensus forecasts.

Crude oil prices continued to march higher amid a lull in top-tier event risk as expected, building on gains following Wednesday’s upbeat DOE inventory data. The EIA monthly supply report and Baker Hughes rig count data are in focus from here and may cap gains if rising swing output continues to look ominous.

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GOLD TECHNICAL ANALYSIS – Gold prices recoiled from monthly highs, hinting a double to may be taking shape. A daily close below the 14.6% Fibonacci expansion at 1236.83 paves the way for a test of the 23.6% level at 1220.17. Resistance is at 1263.87, marked by February 27 high and a falling trend line capping the upside since early July 2016.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil continued to push upward, breaching the psychologically noteworthy $50/bbl figure. From here, a daily close above the 50% Fibonacci retracement at 51.03 exposes the 61.8% level at 51.97. Alternatively, a move back below the 38.2% Fib at 50.09 opens the door for a retest of the 48.93-49.09 area (former resistance, 23.6% retracement).