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Gold, Crude Oil Prices at Risk if US Jobs Data Cools Rate Cut Bets

Gold, Crude Oil Prices at Risk if US Jobs Data Cools Rate Cut Bets

Ilya Spivak, Head Strategist, APAC
Gold prices down as US data cools Fed rate cut bets, crude oil unable to sustain gains

Crude oil, gold price performance chart created using TradingView

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices tumble through support as US data cools Fed rate cut bets
  • Crude oil prices fail to capitalize despite broadly supportive news flow
  • Commodities may fall if US employment report tops baseline forecasts

Gold prices fell as upbeat US economic data cooled Fed rate cut bets, driving bond yields higher and undermining the appeal of non-interest-bearing assets epitomized by the metal (as expected). A private sector estimate of jobs growth from ADP topped forecasts, factory orders rose by the most in 11 months and ISM survey data showed the service sector unexpectedly grew at the fastest rate since May.

The upbeat results buoyed risk appetite, helping prolong Thursday’s rise in cycle-sensitive crude oil prices. The move began amid ebbing geopolitical risk in Italy, the UK and Hong Kong. It got a further fillip as the US and China unveiled plans to resume trade talks in October. Curiously, the WTI benchmark retreated into the session close after the last bit of event risk – EIA inventory flow data – crossed the wires.

The report showed US stockpiles shed 4.77 million barrels last week, dwarfing the 2.57-million-barrel draw expected and the surprise rise telegraphed in analogous API statistics. Larger-than-expected outflows from refined-product storage were also recorded. Nevertheless, prices turned down after touching a one-month high, erasing nearly all of their intraday advance before the closing bell.

GOLD, CRUDE OIL PRICES AT RISK IF US JOBS DATA COOLS FED RATE CUT BETS

Looking ahead, August’s US jobs data is firmly in focus. It is expected to show that the economy added 160k jobs, marking a broadly on-trend outcome. The unemployment rate is seen holding steady at 3.7 percent, a hair above 50-year lows, while wage growth moderates a bit to print at a still-firm 3 percent on-year. US data’s recent improvement relative to forecasts hints a rosier report may well be in the cards.

Figures seen as reducing the Fed’s sense of urgency in expanding stimulus are likely to cool risk appetite. Indeed, recent improvements notwithstanding, the macro backdrop remains worrying. The US-China trade war is unresolved, the Brexit process looks muddled at best, and a slowdown in global growth started in early 2018 continues. That has markets pining for policy support.

A risk-off tilt seems likely to drive crude oil prices downward. Gold might have capitalized if the defensive were to produce the usual downward pressure on bond yields, but scope for such a thing seems limited when the prospect of higher-than-hoped-for lending rates is itself the catalyst for weakness. Against this backdrop, a relatively flat result might be the most that the anti-fiat benchmark can hope for.

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GOLD TECHNICAL ANALYSIS

Gold prices marked a near-term top below resistance at 1563.00 – a weekly chart inflection level – as expected. A breach of support guiding gains over the past month sets the stage to challenge August’s low at 1480.00. Breaking below that on a daily closing basis targets the 1437.70-52.95 zone next.

Gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices put in a Shooting Star candlestick at resistance set from late April, hinting at a downturn in the works. Negative RSI divergence bolsters the bearish argument. Breaking below the August 26 low at 52.96 eyes support near $50/bbl next. Alternatively, a close above resistance exposes the 60.04-84 area.

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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