Gold Prices May Decline as Fed Officials Talk Up Rate Hikes

2017-05-22 08:50:00 Ilya Spivak

Talking Points:

Gold prices stall after rising to a three-week high
Upbeat Fed commentary may trigger a turn lower
Crude oil prices rise with OPEC meeting in focus

Gold prices edged higher on Friday in a move that seemed corrective after the metal suffered its largest drawdown in two weeks in the preceding session. The spotlight now turns to a busy docket of scheduled commentary from Fed officials.

Comments from Governor Lael Brainard as well as Philadelphia and Minneapolis branch presidents Patrick Harker and Neel Kashkari are due to cross the wires. Rhetoric suggesting the central bank remains on track to raise rates next month despite recent US political jitters may weigh on gold.

Crude oil prices continued to push upward even as Baker Hughes reported that the number of active US extraction rigs increased again last week. That seemed to reflect hopes that an OPEC-led production cut effort set to expire mid-year will be extended when the cartel and its allies meet later this week.

Russia and Saudi Arabia favor keeping the scheme in place through the first quarter of next year and many of the relevant parties have already voiced their support. That suggests prices may largely reflect a prolonged arrangement at this stage, robbing the actual announcement of market-moving potential.

In the meantime, speculation may continue to keep oil relatively well-supported, although upward momentum might slow somewhat. Prices may be asymmetrically sensitive to news-flow suggesting the pro-cuts consensus is not as strong as markets hope however. Such a headline might produce significant liquidation.

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GOLD TECHNICAL ANALYSIS – Gold prices are digesting gains after testing resistance in the 1256.74-63.87 area, which has variously acted as support and resistance since late February. A break higher on a daily closing basis exposes trend line resistance at 1280.51. Alternatively, a reversal back below the 23.6% Fibonacci expansion at 1235.91 targets an upward-sloping support line at 1219.23.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices continue to push upward, rising to the highest level in a month. From here, a daily close above the 61.8% Fibonacci retracement at 50.85 opens the door for a test of the 76.4% level at 52.51. Alternatively, a reversal back below the 50% Fib at 49.50 exposes the the 38.2% retracement at 48.15 anew.