Gold Prices Probe Support as US Dollar Gathers Steam

GOLD & CRUDE OIL TALKING POINTS:

• Gold prices drop as risk aversion boosts the US Dollar
• Crude oil prices at risk on EIA drilling productivity data
• Conviction levels low before FOMC rate announcement

Gold prices fell as the US Dollar rose on Friday, sapping the appeal of fiat alternatives. The Greenback rose alongside other frequent beneficiaries of anti-risk capital flows – like the Japanese Yen and US Treasury bonds – as equities plunged. The MSCI World Stock index shed nearly 1.6 percent, sliding to a 17-month low. Cycle-linked crude oil prices fell alongside other risky assets toward their recent range floor (see chart).

CONVICTION LOW BEFORE FOMC, OIL AT RISK ON EIA DATA

From here, a look at the bellwether S&P 500 futures suggests a cautiously upbeat start to the trading week. Conviction seems to be in short supply, which is perhaps to be expected as traders look ahead to the much-anticipated FOMC policy announcement. A lull in high-profile event risk also helps arrest volatility, allowing for a bit of a respite and maybe some corrective upward drift. That might leave gold rudderless.

The monthly EIA Drilling Productivity report may prove noteworthy when it comes across the wires however. It may bolster speculation that swelling US output will undermine OPEC-led supply cut efforts, weighing crude oil prices. The US delivered 11.6 million barrels per day last week, down just a bit from the record-setting 11.7 million barrels in the week before that.

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

GOLD TECHNICAL ANALYSIS

Gold prices are probing the lower bound of resistance-turned-support in the 1235.24-41.64 area. A break back below it confirmed on a daily closing basis opens the door for a test of rising trend support at 1210.20. Alternatively, a bounce sees the first upside barrier in the 1260.80-66.44 zone.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices remain locked in a choppy range below resistance at 53.33 (former support, falling trend line) and support at 49.16 (October 9, 2017 low). A break below support initially targets the August 31, 2017 bottom at 45.62. Alternatively, a daily close above resistance aims for support-turned-resistance at 55.24.

COMMODITY TRADING RESOURCES

• See our guide to learn about the long-term forces driving crude oil prices
• Having trouble with your strategy? Here’s the #1 mistake that traders make
• Join a Trading Q&A webinar to answer your commodity market questions

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

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