Gold Prices Look to Trump Fed Chair Pick for Direction Cues

2017-11-02 03:00:00

Talking Points:

Gold prices looking to Fed Chair nomination for direction cues
Crude oil prices may decline further as risk appetite deteriorates
Where will crude oil and gold be by year-end? See our forecasts

Gold prices edged higher, undeterred by an FOMC policy announcement that set the stage for an interest rate hike in December as expected. Traders were hardly surprised by the outcome having all but fully priced it in long before the rate-setting committee issued its statement.

That shifted the focus to who President Trump will choose to lead the Fed after Chair Yellen’s term expires in February. Rumors hinting that the post will go to Governor Jerome Powell drove the yellow metal higher on bets that this is a relatively more dovish choice than Stanford economist John Taylor.

The formal unveiling of the nominee is due at 19:00 GMT. Gold may extend higher if Mr Powell gets the nod as expected, though follow-through may prove to be relatively limited. The Governor is hardly a dove in absolute terms, falling generally in line with the cautiously hawkish FOMC majority.

The post of Vice Chair is also vacant and it is unclear if Mr Trump will also nominate someone to that post today. If he does and opts for Mr Taylor or a similarly-minded alternative, gold may struggle as the overall makeup of the rate-setting committee shifts in a more hawkish direction.

Crude oil prices retreated after EIA inventory data showed stockpiles shed 2.44 million barrels last week. While this exceeded economists’ projections calling for an 877.25k barrel outflow, it fell far short of the 5.09 million barrel drawdown reported in analogous API figures yesterday.

A lull in top tier oil-specific news flow might set the stage for consolidation in the day ahead. Prices’ sensitivity to overall risk appetite trends should not be dismissed however. S&P 500 futures are pointing sharply lower in Asia Pacific trade, warning that a bout of risk aversion may see crude lose more ground.

What are the fundamental trends driving long-term crude oil price trends? Get free our guide here.

GOLD TECHNICAL ANALYSIS – Gold prices remain confined to a familiar range above the 1266.44-69.10 area (October 5 low, 38.2% Fibonacci expansion). A breach of this barrier initially exposes the 50% levelat 1257.69. Alternatively, a daily close above support-turned-resistance at 1277.16 paves the way for another test of the October 20 high at 1291.06.

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS – Crude oil prices failed to hold up above the 50% Fibonacci expansion at 54.51, stumbling on a test of the January 3 high at 55.24. From here, a move back below the 52.86-53.23 area (38.2% level, September 28 high) exposes the 23.6% Fib retracement at 52.11. A conclusive upside breakout probably calls for a breach of the 61.8% expansion at 55.78. That would then open the door for a test of the 76.4% threshold at 57.36.