Talking Points:

  • Gold price drop pauses as Fed rate hike speculation pauses
  • Uptick in US PCE inflation gauge might revive down move
  • Crude oil prices drop to support as rebound attempt fizzles

Gold prices mounted a tepid recovery as the upturn in Fed rate hike speculation that has defined price action for much of the week paused to consolidate. The US Dollar retraced some of its recent gains alongside front-end Treasury bond yields, shrugging off an upbeat second-quarter GDP revision. Perhaps the print was deemed too dated to influence near-term policy bets and traders opted for profit-taking instead.

From here, the Fed’s favored PCE gauge of US inflation comes into focus. The on-year growth rate is expected to tick up to 1.5 percent in August, marking the first increase in six months. Analogous CPI data published two weeks ago surpassed consensus forecasts. If that proves to have foreshadowed a similarly rosy PCE result, the build in rate hike bets may resume to the detriment of the yellow metal.

Crude oil prices were taken for a wild ride. Initial gains were ostensibly triggered by Turkey’s agreement to restrict Iraqi oil export rights to the central government. The former country is home to a major pipeline outlet from the latter. This follows the Kurdish independence referendum opposed by both Baghdad and Ankara. This may reduce global supply by limiting flows from Kurdish-controlled northern Iraq.

The move higher fizzled in spectacular fashion however, with the WTI benchmark not only erasing all of its early-session gains but tumbling to finish with its worst single-day drop in three weeks. Prices’ inability to capitalize on supportive inventory data spoke to significant underlying weakness. It is possible that the passing of the week’s stock of major scheduled event risk opened the door for that to become actionable.

The weekly report from tanker-tracking firm Oil Movements might have compounded selling pressure. It said that OPEC shipments will rise to 23.96 million barrels in the four weeks to October 14 from the previous month. Tellingly, shipments form the Middle East were predicated to fall in the same period. This might have signaled the inability of the Iraq/Turkey accord to move the needle on the global supply glut.

What are the fundamentals driving long-term crude oil price trends? Find out here!

GOLD TECHNICAL ANALYSISGold prices paused to consolidate losses above support marked by the 50% Fibonacci expansion at 1279.01. A break below that confirmed on a daily closing basis targets the 61.8% level at 1270.84. Alternatively, a turn back above the September 21 low at 1288.28 clears the way for another challenge of the 23.6% Fib at 1297.28.

Gold Price Drop May Resume on US PCE Inflation Data

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSISCrude oil prices are testing support at 51.26, the 14.6% Fibonacci retracement. The barrier is reinforced by a trend line defining the monthly uptrend. A daily close below that exposes the 23.6% level at 50.29. Alternatively, a move above the September 28 high at 52.83 opens the door for a retest of the 53.74-54.48 area.

Gold Price Drop May Resume on US PCE Inflation Data

Chart created using TradingView

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

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