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Gold Prices May Rise as Bond Yields Fall on US GDP Downgrade

Gold Prices May Rise as Bond Yields Fall on US GDP Downgrade

Ilya Spivak, Head Strategist, APAC
Gold and crude oil prices idle before US GDP data

Crude oil, gold price performance chart created using TradingView

GOLD & CRUDE OIL TALKING POINTS:

  • Commodity prices idle, unable to find lasting lead in risk-on trade
  • Gold prices may rise as bond yields fall on Q2 US GDP downgrade
  • Crude oil prices vulnerable after stalling at four-month resistance

Commodity prices idled absent a potent-enough directional lead on Wednesday. A cautious risk-on tilt in prevailing sentiment trends nudged gold prices a bit lower while cycle-sensitive crude oil enjoyed a bit of a lift, but substantive follow-through was not to be had (as expected). Even EIA data showing a sharp 10.03-million-barrel drop in US inventories failed to impress having been telegraphed in API figures earlier.

GOLD MAY RISE AS YIELDS FALL WITH CRUDE OIL ON US GDP DOWNGRADE

A revised set of second-quarter US GDP statistics now enters the spotlight. Baseline forecasts envision a modest annualized growth rate downgrade, from 2.1 to 2.0 percent. Leading PMI data implies a gloomier result, flagging a three-year low in the pace of manufacturing- and service-sector activity growth. This might foreshadow a steeper downward adjustment that expected.

In this scenario, jittery markets already unnerved by an inverted yield curve and the recession warning typically implied therein might scramble for the safety of Treasury bonds. A parallel drop in lending rates might burnish the relative appeal of non-interest-bearing alternatives, which gold epitomizes. Crude oil may suffer however as a souring growth outlook chips away at energy demand prospects.

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GOLD TECHNICAL ANALYSIS

Gold prices are digesting gains after breaking resistance at 1535.03, the August 13 high. Buyers now aim to challenge a weekly inflection level at 1563.00, though negative RSI divergence still hints that upside momentum may be cooling. A turn back below 1535.03 sees the next layer of support at 1480.00.

Gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are stalling below falling trend resistance capping the upside since late April, now at 57.59. Breaking above that on a daily closing basis targets the 60.04-84 area next. Alternatively, a reversal below the August 26 low at 52.96 paves the way to revisit support near the $50/bbl figure.

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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