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Gold Prices at Risk as US Dollar Strength Returns After CPI

Gold Prices at Risk as US Dollar Strength Returns After CPI

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices capitalize on falling Treasury bond yields, timid US Dollar
  • Crude oil prices start to make good on bearish chart cues in risk-off trade
  • Commodities may suffer as Fed rate hike bets swell after US CPI report

Breakneck risk aversion defined commodity price action yesterday.Stock prices swooned as worries about possible instability on the back of a steep Fed tightening cycle reached fever pitch. Sentiment-sensitive crude oil prices followed suit.

Gold prices rose as capital rushed to the safety of Treasury bonds, sinking yields boosting the relative appeal of non-interest-bearing alternatives. An indecisive US Dollar helped open the door for the yellow metal to gain ground.

GOLD MAY FALL AFTER US CPI AS EIA DATA AMPLIFIES OIL WEAKNESS

The spotlight now turns to September’s US CPI data. Absent an improbably dismal disappointment, the release will leave the recent steepening in 2019 Fed rate hike bets intact. Indeed, leading PMI surveys hint at upside surprise risk, meaning a further hawkish shift may yet materialize.

That seems likely to send USD higher. Yesterday’s timid outing largely reflected transitory EURUSD and GBPUSD gains amid growing optimism about an imminent Brexit deal. Absent fresh fodder to fuel that narrative, the Greenback’s appeal as both a yield-seeking and anti-risk asset ought to reemerge.

This bodes decidedly ill for gold as the US unit’s recovery sours demand for anti-fiat alternatives. Meanwhile, crude oil is vulnerable to de-facto selling pressure because prices are denominated in terms of the dominant reserve currency on global markets.

EIA inventory flow data might compound selling pressure. Stockpiles are expected to add 2.17 million barrels but a leading estimate from API put the increase at a whopping 9.75 million barrels over the same period. Official results echoing this projection spell trouble for crude prices.

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

GOLD TECHNICAL ANALYSIS

Gold continue to mark time in a choppy range above support marked by the September 28 low at 1180.86. A breach below that confirmed on a daily closing basis exposes the mid-August bottom at 1160.37. The topside is defended at 1214.30 (range top, trend resistance since mid-April). A break above that would neutralize the immediate bearish bias and open the door for a test of the 1235.24-41.64 area.

Gold Prices at Risk as US Dollar Strength Returns After CPI

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are starting to make good on the formation of a Bearish Engulfing candlestick pattern identified last week, breaking below support in the 72.73-88 area. The next downside hurdle is in the 70.05-26 zone, but longer-term chart positioning hints a more profound down move is in the works. Alternatively, a turn back above 72.88 – now recast as resistance – paves the way for another challenge of the 75.00-77.31 region (August 2011 – June 2012 lows).

Gold Prices at Risk as US Dollar Strength Returns After CPI

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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