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Gold Prices May Fall on Hawkish Fed, US Bond Supply Boost

Gold Prices May Fall on Hawkish Fed, US Bond Supply Boost

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices stalling before Fed rate decision, Treasury funding news
  • Crude oil prices rise on UK supply disruption, US auto rules proposal
  • EIA production report, API inventory flow statistics due for release

Gold prices continued to struggle for lasting direction Monday, with traders understandably unwilling to commit one way or another ahead of the upcoming Fed rate decision. A hike is not expected but officials might dial up hawkish rhetoric in the policy statement to assert their independence after US President Donald Trump talked down rate hikes recently.

The fading appeal non-interest-bearing assets is likely to hurt the yellow metal in this case. The fall may be amplified as the US Treasury reveals how it plans to fund a deficit made larger by a $1.5 trillion tax cut and $300 billion in new spending. Officials said today that third-quarter borrowing will be $329 billion, up from April’s $273 billion projection. Added issuance may amplify upward pressure on yields.

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

CRUDE OIL EYES EIA OUTPUT REPORT, API INVENTORY DATA

Crude oil prices moved higher as three UK oil fields shut down ahead of strikes. Meanwhile, a joint draft report from the National Highway Traffic Safety Administration and the Environmental Protection Agency said a Trump administration proposal to halt higher auto efficiency requirements after 2020 will boost US fuel consumption by 500k barrels per day.

From here, the spotlight turns to monthly EIA production statistics as well as the API estimate of weekly inventory flows. The former will help inform bets on the extent to which growing US output can offset demand pressures. The latter will be judged with reference to official figures due Wednesday that are projected to report a 2.26 million barrel outflow.

See our guide to learn about the long-term forces driving crude oil prices !

GOLD TECHNICAL ANALYSIS

Gold prices remain locked in a familiar range above the 38.2% Fibonacci expansionat 1217.29. A daily close below this barrier initially exposes the 50% levelat 1202.28. Alternatively, a rebound above support-turned-resistance at 1236.66 opens the door for a retest of the 1260.80-66.44 area.

Gold/USD Daily Chart

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices edged above resistance at 69.53, targeting the 38.2% Fibonacci expansion at 71.52 next. A further push beyond that aims for the 50% level at 72.89. Alternatively, a move back below 69.53 – now recast as support, paves the way for another challenge of trend line support set from early February (now in the 66.47-67.72 area).

Crude Oil Daily Chart

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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