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Gold Prices May Probe Higher But Chart Setup Warns of Topping

Gold Prices May Probe Higher But Chart Setup Warns of Topping

2019-08-27 05:00:00
Ilya Spivak, Sr. Currency Strategist
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Gold prices down as crude oil, stocks and yields rebound on ebbing US-China trade war fears

Crude oil, gold price performance chart created using TradingView

GOLD & CRUDE OIL TALKING POINTS:

  • Commodities seesaw as Trump opines on US-China trade war, Iran
  • Gold prices may probe higher but technical setup warns of topping
  • Crude oil prices eye support near $50/bbl, API inventory data due

Gold prices edged lower Monday, gradually erasing a sharp upward spike at the trading open to close nearly flat for the day. The initial surge came courtesy of US-China trade war escalation late last week. The intraday reversal was marked by comments from US President Donald Trump. Speaking fromthe sidelines of the G7 summit, he claimed thatBeijing called to restart talks, reviving the markets’ spirits.

Crude oil prices rose alongside stocks as ebbing trade war worries buoyed risk appetite, closing a downward gap at the weekly trading open. Those gains were soon erased by another set of comments from Mr Trump however, this time offering up “good feelings” about Iran and suggesting that a deal with Tehran could be done. That seemed to chip away at the geopolitical risk premium baked into prices.

GOLD MAY TEST HIGHER WHILE CRUDE OIL WEAKENS AS SENTIMENT SOURS ANEW

Looking ahead, a risk-off tilt seems to be re-emerging as bellwether S&P 500 futures point conspicuously lower. That follows comments from Chinese sources – including Global Times editor-in-chief Hu Xijin – casting doubt on Mr Trump’s account of the fateful phone call asking to resume negotiations. The paper is a part of the People’s Daily, the flagship print outlet for the ruling Communist Party.

In any case, the baseline disagreement between the two sides remains unresolved and neither party has walked back the latest round of planned tariff hikes. This might be enough to sour investors’ mood anew now that yesterday’s euphoria has somewhat subsided. Gold may attempt another upward push as yields backtrack in such a scenario.

Crude oil prices might weaken in the meanwhile, although incoming API inventory flow data could disrupt the influence of sentiment trends. The data will be weighed up against expectations of a 1.94-million-barrel drawdown expected to be reported in official EIA statistics on Wednesday. A larger outflow might prove to be supportive while a smaller one has scope to amplify any selling pressure.

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GOLD TECHNICAL ANALYSIS

Gold prices put in a dramatic-looking Shooting Star candlestick on a test of resistance at 1535.03, the August 13 high. This coupled with negative RSI divergence warns that a top might be taking shape. Breaking below initial support at 1480.00 initially exposes the 1437.70-52.95 zone. Alternatively, taking out resistance sees the next upside barrier marked by a weekly chart inflection level at 1563.00.

Gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices broke support in the 53.95-54.84 congestion area, setting the stage for a retest recent lows near the $50/bbl figure. Pushing further beneath that would put three-year support in the 42.05-43.00 zone back into focus. Critical resistance is marked by a downward-sloping barrier capping forays to the upside since late April. Its outer layer is now at 57.84.

Crude oil price chart - daily

Crude oil price chart created using TradingView

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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