GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices on the cusp of trend reversal before services ISM data
  • Risk appetite recovery driving another upshift in Fed rates outlook
  • Crude oil prices eye API inventory data after hitting 2-month low

Gold prices probed higher as the US Dollar retreated in the first half of the week’s opening session but the rally was arrested as the benchmark currency seesawed higher midday. The upswing tracked a move higher in front-end Treasury bond yields and a steepening of the priced-in 2019 rate hike outlook implied in Fed Funds futures.

Last week’s political instability in Italy saw the greenback reclaim its haven asset credentials, finding support amid the turmoil. The easing of those concerns has translated into some understandable retracement of those gains. However, the reach for yield consistent with the return to “risk-on” trade has also reminded investors that the Fed boasts the most hawkish posture among its G10 counterparts.

Meanwhile, crude oil prices fell to the lowest level in nearly two months amid speculation that the OPEC-led group of top producers is preparing to dial back a coordinated output cut scheme meant to reduce global oversupply. Ministers from several OPEC countries said they want to “ensure stable supplies are made available in a timely manner” at an unofficial meeting in Kuwait City over the weekend.

SERVICES ISM SURVEY, API INVENTORY DATA DUE

Looking ahead, the non-manufacturing ISM survey is expected to show that the pace of activity growth in the US service sector accelerated in May. An upbeat result echoing Friday’s impressively strong labor-market data might stoke Fed rate hike speculation further, sending yields and the US Dollar upward in tandem once again. That would bode ill for gold prices.

Meanwhile, crude oil prices may look to API inventory data for direction. It will be judged in the context of a 2.24 million barrel outflow expected to be reported in official EIA statistics Wednesday. A larger draw may offer a near-term boost while a smaller one or even a surprise build are likely to apply downward pressure. Soundbites from the Platts Global Crude Oil Summit may also factor into intraday swings.

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

GOLD TECHNICAL ANALYSIS

Gold prices are probing below support guiding the uptrend from December 2016, now at 1292.19. A daily close below that opens the door for a test of the 1260.80-66.44 area. Alternatively, a push above resistance capping gains since mid-April at 1301.15 exposes the upper layer of trend support at 1309.31, followed by inflection point resistance at 1323.60.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are threatening a break of rising trend support set from June 2017, now at 64.55. Confirmation on a daily closing basis sees the next downside threshold at 61.84. Alternatively, a move back above resistance in the 66.22-67.36 zone opens the door for another challenge of the 68.64-69.53 congestion area.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

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

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