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CRUDE OIL & GOLD TALKING POINTS:

  • Crude oil prices surge on supply squeeze fears before Iran sanctions
  • Gold prices fall as swelling Fed rate hike bets boost yields, US Dollar
  • Risk aversion may see oil rally stall as gold prices continue to decline

Crude oil prices returned to the offensive after a brief pause in a move that the newswires attributed to fears of a global supply squeeze as sanctions are re-imposed on exports from Iran. The move was capped after EIA inventory data showed a dramatically larger-than-expected build of 7.98 million barrels. That marked the largest one-week stockpile increase since early March 2017.

Gold prices fell as traders saw cooling Italian budget woes as giving the Fed a freer hand to press on with interest rate hikes, as expected. The metal fell alongside the spread between Italian and German 10-year bond yields – a measure of the added risk in lending to Rome versus Berlin – while a steepening of the 2019 tightening path implied in Fed Funds futures drove the US Dollar and Treasury bond yields up in tandem.

SWELLING FED RATE HIKE BETS MAY CAP OIL RALLY, SINK GOLD

The hawkish shift in Fed policy bets seems to be weighing on risk appetite, particularly after Chair Jerome Powell signaled that rates may rise beyond a “neutral” level. That drove shares sharply lower in late Wall Street trade and the risk-off mood seems be finding follow-through, with futures tracking the bellwether S&P 500 stock index facing severe pressure in Asia Pacific trade.

What this means for key commodities is somewhat clouded. Risk aversion might have been expected to boost gold as yields decline, but probably won’t happen considering it is in fact a rise in rates and an accompanying US Dollar upswing that has soured sentiment. In this environment, the standby anti-fiat alternative seems likely to continue downward. The risk-off mood may also slow the oil rally, at least for now.

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

GOLD TECHNICAL ANALYSIS

Gold prices are retreating from resistance below 1214.30 (range top, trend line set from mid-April). The September 28 swing low at 1180.86 marks initial support, with a daily close below that exposing the mid-August bottom at 1160.37. Alternatively, a sustained breach above resistance sees the next upside hurdle in the 1235.24-41.64 zone.

Crude Oil Price Gains May Stall as Gold Drops on Fed Rate Hike Bets

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to grind through resistance in the 75.00-77.54 area (August 2011 – June 2012 lows, 76.4% Fibonacci expansion). A daily close above its upper bound exposes the 100% level at 81.58. Alternatively, a reversal back below the 75.00 figure paves the way for a retest of the 50% Fib at 73.02.

Crude Oil Price Gains May Stall as Gold Drops on Fed Rate Hike Bets

COMMODITY TRADING RESOURCES

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

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