Gold Prices to Fall if Trump, Xi Meeting Clears Fed Hike Path
- Gold prices continue to stall below trend-defining resistance
- Crude oil prices slump as EIA data shows inventory increase
- Smooth Trump, Xi meeting may weigh on commodity prices
Gold prices dipped toward the floor of their two-week range but swiftly recovered after minutes from the March FOMC meeting crossed the wires. Perhaps most critically, the document showed that central bank staff and about half of the rate-setting committee included an explicit assumption of expansionary fiscal policy in their economic forecasts.
Traders appeared to interpret signs of dependence on an inflationary fiscal boost to make the case for tightening as dovish (as expected), figuring that the recent failure of the AHCA healthcare reform bodes ill for implementing the rest of the White House agenda. An otherwise hawkish discussion of starting to trim the balance sheet this year was probably dismissed on these grounds.
From here, the spotlight turns to a meeting between US President Trump and his Chinese counterpart Xi Jinping. Combative rhetoric from Washington DC has markets worried about a potential rift in the trading relationship between the world’s largest economies that might upset global supply chains and the international commercial order as a whole.
If the Trump/Xi sit-down appears to show the two leaders finding common ground, the threat of such a gloomy scenario will downgraded (at least for now). That may be seen as clearing the path for Fed rate hikes, since the alternative would likely result in dramatic risk aversion and put the central bank on the sidelines. Such a result would inherently undermine demand for anti-fiat assets, weighing on gold.
Crude oil prices slumped after EIA inventory data unexpectedly showed that stockpiles added 1.57 million barrels last week. Consensus forecasts ahead of the release pointed to a small 150k barrel drawdown and an API estimate released a day earlier argued for a 1.83 million barrel outflow. Here too, the focus now turns to the Trump/Xi meeting.
Census Bureau data released earlier this week showed that China became the largest importer of US crude in February. An adversarial relationship may dim prospects for more of the same, trimming global supply flows and pushing prices upward. A Trump/Xi meeting that passes without major incident may lay such concerns to rest for the near term, weighing on the WTI benchmark along the way.
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GOLD TECHNICAL ANALYSIS – Gold prices continue to mark time below key resistance at 1263.87 (February swing high, trend line). A Shooting Star candlestick coupled with negative RSI divergence hint a turn lower may be brewing ahead. A daily close below the 14.6% Fibonacci expansion at 1236.83 opens the door for a test of the 23.6% level at 1220.17.
Chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices were rejected after an attempt to challenge the $52/bbl figure. Near-term support is at 50.14, the 23.6%Fibonacci expansion, with a break below that opening the door for a test of the 14.6% level at 48.98. Alternatively, a daily close above the 38.2% Fib at 52.04 exposes the 50% expansion at 53.57.
Chart created using TradingView
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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