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Gold, Crude Oil Prices at Risk if ECB, US CPI Cool Stimulus Hopes

Gold, Crude Oil Prices at Risk if ECB, US CPI Cool Stimulus Hopes

2019-09-12 05:00:00
Ilya Spivak, Sr. Currency Strategist


  • Gold prices snap four-day losing streak ahead of key event risk
  • Crude oil prices drop as distillate build warns of soggy demand
  • ECB rate decision, US CPI data might put markets on defense

Gold prices tracked higher, breaking a four-day losing streak. The move appeared to reflect corrective flows amid pre-positioning ahead of heavyweight event risk rather than a discrete catalyst. Crude oil prices fell for a second day as distillate inventories unexpectedly rose by the most in two months, warning about weakness in downstream demand. A large drop in crude storage seems to have been priced in already.


Looking ahead, a modestly risk-on tilt has prevailed in Asia Pacific trade amid hopes that reciprocal ‘goodwill’ gestures from the US and China bode well for upcoming trade negotiations. Bellwether S&P 500 futures are pointing obligingly higher, signaling that the cheery mood has scope for follow-through. That might be misleading however as the spotlight turns to ECB rate decision and US CPI data.

First, markets seem to agree on the likelihood that the ECB will deploy additional stimulus. The priced-in probability of a deposit rate cut is pegged at a commanding 100 percent. Many also seem to think that policymakers will move a step further to set the stage for another round of QE (if not triggering one upfront). Guidance on scope for a lasting easing cycle is also eyed.

Such lofty expectations mean it will be hard for President Mario Draghi and company to produce a sentiment-boosting dovish surprise. By contrast, the risk of an underwhelming outcome that sours investors’ mood appears to be asymmetrically high. An uptick in US core inflation that cools Fed rate cut speculation ahead of next week’s FOMC meeting may compound any risk-off reversal.

Cycle-sensitive crude oil prices appear vulnerable to deeper losses if markets find themselves on the defensive once again. The implications for gold may not be altogether positive either. While the non-interest-bearing metal tends to rise when haven-seeking capital flows drive down bond yields, it may not manage such a feat when the prospect of higher lending rates is itself the spark for risk aversion.

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Gold prices found interim support just above the August low at 1480.00. A bounce from here sees its first major hurdle at 1563.00, a weekly chart inflection point. Alternatively, a break downward confirmed on a daily closing basis targets the 1437.70-52.95 area next.

Gold price chart - daily

Gold price chart created using TradingView


Crude oil prices have pulled back to menace near-term rising trend support set from August’s swing bottom, now at 54.94. Breaking below that on a daily closing basis exposes a minor hurdle at 52.96 on route to a pivotal barrier near the $50/bbl figure. Immediate resistance is in the 60.04-84 area.

Crude oil price chart - daily

Crude oil price chart created using TradingView


--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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