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Gold Prices May Fall if BOC Signals More Rate Hikes on the Horizon

Gold Prices May Fall if BOC Signals More Rate Hikes on the Horizon

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Gold prices may fall if BOC officials hint further rate hikes are likely ahead
  • Crude oil prices are looking to API inventory flow data following pullback
  • What do retail traders’ bets suggest about gold price trends? Find out here

Gold prices were in for a volatile session. The metal began the day on the defensive as US markets returned in an upbeat mood after Monday’s holiday closure but a violent intraday reversal inspired a swift recovery that erased nearly all of the decline. The benchmark S&P 500 stock index touched a record high only to turn sharply lower, suffering its first down day in three weeks.

From here, the spotlight turns to a monetary policy announcement from the Bank of Canada. Traders seem convinced that a rate hike is in store, pricing in its likelihood at close to 90 percent. If policymakers’ tone is optimistic and further tightening seems to be in the offing, markets may be inspired to reach for yield at the expense of non-interest-bearing assets, pressuring gold downward.

Crude oil prices fell amid a slew of negative headlines. China National Petroleum Corp. said demand in the world’s second-largest economy will slow in 2018 while an EIA report on US drilling productivity upgraded its forecast for output in January and said next month’s output will be higher still. The risk-off mood didn’t help either, with the WTI contract hitting session lows as shares turned downward.

API inventory flow statistics are now in focus. The report will be judged against expectations of a 1.6 million barrel draw in crude stocks and a 2.85 million building gasoline storage to be reported in official DOE figures due Thursday. It ought to be kept in mind that markets have been most responsive to relative flow dynamics at the top and bottom of the supply chain rather than individual readings.

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

GOLD TECHNICAL ANALYSISGold prices are pulling back after putting in a Shooting Star candlestick coupled with negative RSI divergence, as expected. A daily close below the 23.6% Fibonacci expansion at 1329.45 paves the way for a retest of the January 10 low at 1308.38. Alternatively, a push above 1342.49 exposes 1353.03 (trend line from July 2016, 50% level).

Gold Prices May Fall if BOC Signals More Rate Hikes on the Horizon

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSISCrude oil prices produced a bearish Evening Star candlestick pattern, hinting a top may be taking shape. A daily close below the 23.6% Fibonacci retracement at 62.81 sees the next downside barrier at 61.53, the 38.2% level. Alternatively, a push above the 64.89-65.47 zone (January 15 high, 23.6% Fib expansion) targets the 38.2% threshold at 66.75.

Gold Prices May Fall if BOC Signals More Rate Hikes on the Horizon

Chart created using TradingView

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

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