Gold Prices Drop as Risk Recovery Boosts Yields - Now What?

Talking Points:

• Gold prices fall as risk recovery boosts bond yields, US Dollar
• Crude oil prices plunge as EIA inventory drawdown disappoints
• Sentiment trends remain in focus but near-term outlook clouded

Gold prices pulled back as the US Dollar recovered alongside front-end Treasury bond yields, undermining support for non-interest-bearing and anti-fiat assets. A broad-based recovery in risk appetite appeared to drive the move, with rates and the greenback tracking shares upward through Asian and European trade.

Sentiment soured as Wall Street came online, with disappointing EIA inventory data sinking crude oil prices. Energy-linked shares followed suit, dragging down equity averages. Rates managed to hold up however, helped by a sanguine Fed Beige Book and upbeat comments Stanley Fischer and Eric Rosengren.

A quiet economic calendar in the hours ahead. That may put sentiment trends back in control, although it is unclear to what end. Indeed, S&P 500 futures are conspicuously flat heading into the European trading day, suggesting the cautiously upbeat mood on Asian bourses is struggling to extend.

Comments from a gathering of oil industry bigwigs at the Petroleum Media Forum in Ahu Dhabi may prove market-moving, particularly in the context of yesterday’s energy-linked volatility. A policy speech from Fed Governor Jerome Powell is also on the docket.

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GOLD TECHNICAL ANALYSIS – Gold prices turned lower as expected but failure to break the series of higher highs and lows set from mid-March makes the move appear corrective so far. A daily close below trend line support – now at 1269.83 – would change that, pointing to a larger downward reversal and initially exposing the 14.6% Fibonacci expansion at 1258.62. A formidable wall of resistance stands in the 1288.91-1308.00 area (trend line, April 17 high, former support).

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices turned sharply lower, recoiling from resistance at a falling trend line capping the upside since the beginning of the year. From here, a daily close below the 38.2% Fibonacci expansion at 50.71 exposes the 50% level at 49.78. Alternatively, a move back above the 23.6% Fib at 51.87 targets the 14.6% expansion at 52.58.

Chart created using TradingView

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

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