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Gold Prices Locked in Place as US Dollar, Treasury Yields Diverge

Gold Prices Locked in Place as US Dollar, Treasury Yields Diverge

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices locked in place as US Dollar, Treasury bond yields diverge
  • Crude oil price moves echo stocks as trade wars return into the spotlight
  • S&P 500 futures hint at risk recovery, API inventory flow report on tap

Trade war escalation fears shaped commodity price action Monday. Crude oil prices tumbled alongside stocks and gold prices weakened as the US Dollar found renewed support from haven-seeking flows. The metal’s losses were capped by a parallel drop in bond yields however, underscoring that its roles as anti-fiat and non-interest-bearing alternatives are operating at cross-purposes in the current environment.

GOLD MAY STRUGGLE WHILE CRUDE OIL GAINS IN RISK-ON TRADE

Looking ahead, sentiment remains at the forefront. Supportive comments from US President Donald Trump are driving a recovery in risk appetite in Asia Pacific hours. He talked up the possibility of a “great deal” on trade with China, easing earlier worries. A spirited rise in S&P 500 futures hits the move has scope to continue in the hours ahead.

Gold seems likely to remain noncommittal against this backdrop if the Greenback and Treasury yields continue to diverge. Recoupling reflecting firming Fed rate hike bets in a risk-on scenario would almost certainly send the metal sharply lower, but it is probably a stretch to expect such a shift in prevailing cross-market relationships can happen overnight.

Meanwhile, crude oil may rise with shares but follow-through could be cut short by API inventory flow data. The outcome will be weighed against forecasts calling for official EIA statistics to reveal that stockpiles added 2.88 million barrels last week. Prices may struggle to sustain upward momentum if API reports a larger inflow, whereas a smaller one or even a surprise drawdown might amplify any upside retracement.

See our gold forecast to learn what is likely to drive price action through year-end!

GOLD TECHNICAL ANALYSIS

Gold prices inching back from resistance in the 1235.24-41.64 area, with negative RSI divergence suggesting that a near-term top may be taking shape. A daily close below initial support in the 1211.05-14.30 region opens the door for another challenge of the September 28 low at 1180.86. Alternatively, renewed upside momentum that brings prices through resistance sees the next key barrier in the 1260.80-66.44 zone.

Gold Prices Locked in Place as US Dollar, Treasury Yields Diverge

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices recoiled lower on a retest of support-turned-resistance set from early February, losing upward momentum after testing the bounds of the series of lower highs and lows started at the beginning of the month. From here, a daily close below the October 23 low at 65.77 exposes the 64.26-45 area next. Alternatively, a push above the upper layer of former support at 68.84 targets the 70.05-26 zone. Longer-term positioning hints a major bearish trend reversal is afoot.

Gold Prices Locked in Place as US Dollar, Treasury Yields Diverge

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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