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Gold Price Outlook Hinges on US Dollar, Bond Yields Divergence

Gold Price Outlook Hinges on US Dollar, Bond Yields Divergence

2019-05-15 07:00:00
Ilya Spivak, Head Strategist, APAC
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GOLD & CRUDE OIL TALKING POINTS:

  • Gold price rise grinds to a halt at resistance near the $1300/oz figure
  • US Dollar, bond yields divergence likely to determine gold’s next move
  • Crude oil prices at risk on downbeat macro data, IEA and EIA reports

Gold prices struggled for upside follow-through after Monday’s dramatic surge as risk appetite steadied. US President Donald Trump offered hopeful comments about the possibility of a US-China trade agreement, helping to drive a correction after bloodletting at the start of the trading week. The yellow metal inched lower as the improved mood pushed up lending rates, sapping demand for non-yielding assets.

Cycle-sensitive crude oil prices managed a tepid rise, with the WTI benchmark inching upward alongside recovering stock markets. The upswing receded as API reported that US inventories added a hefty 8.63 million barrels last week. That dwarfs the far more modest 29k barrel inflow expected to be reported in official government data due later today.

GOLD, CRUDE OIL PRICES MAY SUFFER AS MARKETS TURN DEFENSIVE ANEW

Looking ahead, markets may swing back to a risk-off setting. Mr Trump offered ample assurances about an imminent US-China trade pact in recent months only to dial up tariffs and beckon retaliation, so markets may treat his latest pronouncements with suspicion. Meanwhile, soggy Chinese economic data may be matched by similarly downbeat Eurozone GDP and US retail sales figures, stoking global slowdown fears.

Gold will eye the magnitude of divergence in bond yields and the US Dollar if liquidation resumes. A supportive drop in the former amid swelling haven demand for government debt may be counterbalanced if a defensive turn in the markets’ mood puts a premium on the latter’s unrivaled liquidity, sending it broadly higher and sapping the appeal of anti-fiat alternatives.

Crude oil may suffer alongside other sentiment-geared assets in this scenario. Downside pressure may be amplified if EIA inventory figures echo API’s projection. Sellers might be encouraged further if a monthly report from the IEA reveals bets on swelling US output coupled with ebbing demand prospects amid slowing global growth.

Did we get it right with our crude oil and gold forecasts? Get them here to find out!

GOLD TECHNICAL ANALYSIS

Gold prices stalled ahead of resistance in the 1303.70-09.12 area after punching through resistance guiding the down move from the February swing top. An upward break confirmed on a daily closing basis exposes the 1323.40-26.30 zone next. A cluster of overlapping support levels runs through 1271.81, with a breach below that quickly met with another barrier in the 1260.80-63.76 region. Clearing the latter hurdle seems to be a prerequisite for meaningful downside progress.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to tread water above support at 60.39. Breaking below this barrier on a daily closing basis initially opens the door for a challenge of the 57.24-88 area. A dense resistance bloc in the 63.59-67.03 zone caps the upside. If buyers manage to breach it, a path toward retesting the $70/bbl figure may be cleared.

Crude oil price chart - daily

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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