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Gold Prices at Risk as Range Floor Breaks Before Fed Policy Call

Gold Prices at Risk as Range Floor Breaks Before Fed Policy Call

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Gold prices break 2018 range floor before Fed policy announcement
  • Crude oil prices rise as OPEC-led producers weigh output cut goals
  • EIA inventory data impact may be overshadowed by FOMC outcome

Gold prices fell as the US Dollar marked higher alongside front-end Treasury bond yields and the priced-in rate hike path implied in Fed Funds futures steepened. Not surprisingly, that undermined the appeal of anti-fiat and non-interest-bearing assets epitomized by the yellow metal. The move almost certainly reflects pre-positioning ahead of the upcoming FOMC monetary policy announcement.

Markets seem palpably worried about acceleration of the tightening cycle. That has been reinforced by a hawkish turn in official rhetoric since newly minted Chair Jerome Powell took office. His early pronouncements from the helm have been echoed even by heretofore committed doves like Governor Lael Brainard, signaling a broader pivot toward more assertive stimulus withdrawal is afoot.

With a rate increase widely expected, updated economic forecasts and Mr Powell’s press conference following the announcement are in focus. The markets are already priced for December’s 2018 Fed outlook but they are 50-75 basis points behind what officials penciled in for 2019-20. An upgrade may open this gap wider while Mr Powell’s confident stance encourages investors to catch up, pressuring gold further.

Crude oil prices pushed higher as OPEC-led producers mulled amending the goals of their coordinated output cut scheme that would prolong the effort. Meanwhile, API reported that US inventories unexpectedly shed 2.74 million barrels last week, clashing with forecasts calling for a 2.54 million barrel inflow to be reported in official EIA statistics due to cross the wires today.

The WTI contract may get a further boost if the government’s report echoes API’s projection. The Fed’s influence is likely to be felt here as well however and may overshadow other considerations. Signaling a pickup in the pace of tightening might weigh against market-wide risk appetite, which could see crude prices following stock markets downward.

Join our Fed rate decision webinar and follow its impact on gold prices live!

GOLD TECHNICAL ANALYSIS

Gold prices narrowly broke long-standing support in the 1312.36-16.50 area (range floor, 38.2% Fib retracement). The next downside barrier lines up at 1301.19, the 50% level, with a daily close below that exposing the 61.8% Fib at 1285.88. Alternatively, a turn back above the 38.2% retracement at 1316.50 – now recast as resistance – aims for a falling trend line at 1324.21.

Gold Prices at Risk as Range Floor Breaks Before Fed Policy Call

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices have challenged resistance in the 63.90-64.21 area (23.6% Fibonacci expansion, February 26 high). A daily close above that exposes the 66.63-67.49 zone (January 25 high, 38.2% level). The first major support comes in at the $60/bbl figure, followed by the February 9 low at 58.11.

Gold Prices at Risk as Range Floor Breaks Before Fed Policy Call

COMMODITY TRADING RESOURCES

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

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