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Gold Prices Seesaw on Dovish ECB, Trade War Jitters May Resurface

Gold Prices Seesaw on Dovish ECB, Trade War Jitters May Resurface

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices seesaw on ECB but fail to find lasting direction
  • Crude oil prices rise as Libya shutters two export terminals
  • G20 energy ministers meet, trade wars may return to focus

Gold prices shot to the highest level in a month after the ECB policy announcement struck a decidedly dovish tone, as expected. Officials said they will wind down QE by year-end but this looked like an admission of defeat, not a declaration of victory. President Draghi said follow-on rate hikes will not come at least until the second half of 2019 and stressed the need for continued accommodation.

The markets were looking for a decidedly more hawkish outcome, so it seems hardly surprising that the ECB’s timid tone offered a lift to non-interest-bearing assets epitomized by the yellow metal. Gains proved fleeting however as a parallel plunge in the Euro echoed as broad US Dollar strength via the bellwether EUR/USD exchange rate. That undermined anti-fiat appeal, erasing most of gold’s gains for the day.

Crude oil prices edged up for a second day. Saudi oil minister Khalid Al-Falih talked up prospects of a deal on easing output quotas that will emerge form next week’s OPEC+ meeting, but the downswing that followed was quickly reversed. The upswing followed reports that shipments from two of the largest ports in Libya were taken offline amid clashes between rival forces.

US CONSUMER CONFIDENCE, G20 MEETING, TRADE WARS

Looking ahead, an uptick in US consumer confidence may reinforce this week’s hawkish Fed policy announcement, boosting rate hike expectations and sending gold lower as the greenback extends upward. A sentiment gauge from the University of Michigan is expected to rise in June after two months of moderation.

Meanwhile, crude oil traders will turn their attention to a meeting of G20 energy ministers in Argentina. The gathering will put officials from Russia, Saudi Arabia, the US and Canada in the same room, which might produce some interesting headline flow.

The former three countries seem to agree on the need for an output boost to bring prices lower. The latter may not be quite so keen considering the high breakeven point for tar sands crude, which might open up another fissure in already strained US/Canada relations.

In fact, markets may return to the subject of trade wars more broadly now that the week’s top-tier event risk has passed. An adequate response to simmering tension on display at last week’s G7 leaders’ summit is still pending. The US may also trigger $50 billion in tariffs aimed at China. That might sour risk appetite, pressuring crude lower alongside stocks. Gold has struggled to find direction in such episodes however.

Learn what other traders’ gold buy/sell decisions say about the price trend!

GOLD TECHNICAL ANALYSIS

Gold prices are still bogged down at support set from December 2016. A daily close below its lower bound at 1296.07 initially exposes the May 21 low at 1282.27. Alternatively, a push above the 1302.97-07.32 area aims for the upper bound of trend support (1313.70), followed by a chart inflection point at 1323.60.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are testing resistance in the 66.22-67.36 congestion area, with a break above it opening the door for a test of the 68.64-69.53 zone. Alternatively, a reversal through support guiding the uptrend from June 2017 – now at 65.28 – paves the way for a test of the April 6 low 61.84.

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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