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Gold Prices on the Verge of Breakdown Despite Risk Aversion

Gold Prices on the Verge of Breakdown Despite Risk Aversion

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices flirting with breakdown as risk aversion boosts US Dollar
  • Down move in bond yields limiting gold weakness, but not offsetting it
  • Crude oil prices may resume decline as UK, US markets return online

Gold prices were torn between conflicting cues at the start of the trading week as worries about political instability in Italy crushed risk appetite and sent the US Dollar higher alongside Treasury bonds, pushing yields lower. The greenback’s gains weighed on the anti-fiat yellow metal but the accompanying drop in yields spoke to its appeal as a non-interest-bearing alternative, capping losses.

Asia Pacific bourses celebrated after President Mattarella vetoed the nomination of a eurosceptic to lead the Economy Ministry but Europe was clearly of another mind. The spread between Italian and German bond yields – a measure of the extra risk in lending to Rome versus Berlin – jumped to a four-year high as regional markets came online, with the risk-off mood then spreading across the asset spectrum.

Crude oil edged lower early Monday as APAC markets took their turn pricing in Friday’s fireworks but market closures in the UK and the US cut off subsequent follow-through. That left the Brent and WTI benchmarks to linger in consolidation mode through the rest of the day. Tropical storm Alberto – the first of the season – had a seemingly negligible impact on oil infrastructure in the Gulf of Mexico.

COMMODITIES MAY EXTEND DROP IN RISK-OFF TRADE

Looking ahead, US consumer confidence data headlines an otherwise tepid data docket. A slight downtick is expected, which seems unlikely to alter Fed policy bets in a meaningful way. A speech from St. Louis Fed President James Bullard may likewise pass without fireworks. His dovish disposition is well-known and should not be surprising for financial markets.

This will probably put sentiment trends back at the forefront. Futures tracking the FTSE 100 and S&P 500 equities benchmarks are pointing lower before London and New York return online having been shuttered for holidays on Monday, hinting that a risk-off bias is set to prevail. That seems likely to bode ill for commodity prices as a whole.

See our quarterly gold price forecast to learn what will drive the trend through mid-year!

GOLD TECHNICAL ANALYSIS

Gold prices edging back toward the lower bound of trend support guiding them higher since December 2016, now at 1290.05. A daily close below that initially targets the 1260.80-66.44 area. Alternatively, a break above falling trend line resistance at 1304.01 exposes trend support’s upper extremity at 1310.73, followed by a the inflection point at 1323.60.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are stalling at support in the 66.22-67.36 area having reversed downward as expected. A daily close through this barrier exposes a rising trend line at 65.38, followed by a chart inflection point at 63.96. Near-term resistance is marked by the April 19 highat 69.53.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

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

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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