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Gold Prices Eye US Dollar Response Amid Market Meltdown

Gold Prices Eye US Dollar Response Amid Market Meltdown

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices soar to channel top resistance as Trump threatens shutdown
  • Crude oil prices back at range floor after falling in broad risk aversion
  • S&P 500 figures hint sentiment deterioration to continue into week-end

Gold prices soared as the US Dollar retreated from post-FOMC highs, boosting the appeal of anti-fiat alternatives. What started as corrective retracement for the Greenback accelerated into an outright selloff after President Donald Trump refused to sign a stop-gap spending bill to avert a government shutdown on Friday. He insisted any such measure must include funding for a wall along the Southern US border.

Worries about how fiscal drag from a shutdown might compound already slowing economic growth weighed on market-wide risk appetite. Cycle-sensitive crude oil prices dropped alongside the bellwether S&P 500 stock index. It touched the lowest level in 16 months intraday before late-session bounce. Nevertheless, it registered the sixth consecutive close on the downside.

CRUDE OIL MAY FALL, GOLD EYES US DOLLAR IN RISK-OFF TRADE

Looking ahead, turmoil in Washington DC is likely to remain at the forefront for financial markets. As if the threat of a shutdown were not enough, the administration was roiled by the sudden resignation of Defense Secretary James Mattis. The departure was punctuated by the revelation of sharp policy differences between Mattis and the President.

Mood-setting S&P 500 futures dutifully pointed lower, signaling a risk-off bias into the end of the trading week. That might bode ill for crude oil prices. Gold might find fuel for gains if the dour mood weighs on bond yields, burnishing the relative appeal of non-interest-bearing assets. Gains may be limited however if the US Dollar rediscovers its capacity to capitalize on haven demand.

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

GOLD TECHNICAL ANALYSIS

Gold prices are testing resistance in the 1257.60-66.44 zone, an area marked by the top of a rising channel in play since mid-August. A daily close above it exposes the underside of former support set from December 2015, now at 1274.87. Negative RSI divergence points to ebbing upside momentum however, hinting a reversal might be in the cards. Breaking support in the 1233.60-41.80 region opens the door for a test of the channel floor.

Gold Prices Eye US Dollar Response Amid Market Meltdown

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices have stalled after hitting a 16-month low. From here, breaking below the December 18 bottom at 45.79 paves the way for a challenge of the 42.05-55 area. Alternatively, a bounce back above the November 29 low at 49.41 – now recast as resistance – sees the next upside barrier marked by former trend line support, now at 51.65.

Gold Prices Eye US Dollar Response Amid Market Meltdown

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--- 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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