Gold Prices May Drop as FOMC Minutes Cool Rate Cut Speculation

2019-05-22 05:00:00 Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

Gold prices rudderless as Brexit news-flow offers conflicting influences
Crude oil prices remain range-bound, eyeing EIA inventory flow report
FOMC meeting minutes may cool rate cut bets, hurt commodity prices

Gold prices struggled to for direction, trading inversely of seesaw swings in the US Dollar. It succumbed to cross-currents from a jump in the GBP/USD exchange rate after UK Prime Minister Theresa May floated the possibility of a second Brexit referendum. The move promptly fizzled however, with a rebound in the benchmark currency cooling anti-fiat demand and forcing the yellow metal to retreat.

All eyes now turn to minutes from May’s FOMC meeting. Commentary reiterating officials’ wait-and-see approach amid a raft of global uncertainties may cool rate cut hopes. That seems inherently USD-supportive, with haven demand acting as a further accelerant as markets pining for policy support tilt into risk-off territory. Gold is vulnerable in this scenario.

Crude oil prices swung modestly lower but remained well within the narrow congestion range prevailing since late last week. Fed-inspired risk aversion might make for a more committed selloff. Pressure may be compounded if EIA inventory data echoes an API projection showing US stocks added 2.4 million barrels last week. Analysts are betting on a 1.28-million-barrel increase.

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GOLD TECHNICAL ANALYSIS

Gold prices are still probing support at a rising trend line guiding them higher since mid-August 2018. This is bolstered by the 1260.80-63.76 inflection area. A daily close below that targets the 1235.11-38.00 zone thereafter. Alternatively, a rebound above resistance in the 1303.70-09.12 region broadly aims for February’s high at 1346.75, with a minor hurdle in the 1323.40-26.30 price band along the way.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices continue to mark time at the lower bound of a dense block of overlapping resistance levels in the 63.59-67.03 area. If buyers manage the wherewithal to breach it, an opening to retest the $70/bbl figure may present itself. Alternatively, a drop through near-term support at 60.39 sees the next downside barrier in the 57.24-88 zone.