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Gold Prices Show Signs of Topping as All Eyes Turn to FOMC

Gold Prices Show Signs of Topping as All Eyes Turn to FOMC

2019-09-18 03:00:00
Ilya Spivak, Sr. Currency Strategist
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GOLD & CRUDE OIL TALKING POINTS:

  • Gold price technical positioning hints a top may be in the works
  • Crude oil prices sink as Saudi Arabia reassures jumpy markets
  • FOMC policy guidance may underwhelm dovish market outlook

Gold prices idled in familiar territory for a fifth consecutive day, with traders seemingly unwilling to show conviction one way or the other ahead of the Fed monetary policy announcement. The US central bank is widely expected to issue another rate cut.

Indeed, futures markets imply that the probability of just such an outcome is priced in at a commanding 100 percent. The chance of a 25bps reduction is favored at 77.7 percent and the possibility of a 50bps downward adjustment is nevertheless at a non-trivial 22.3 percent.

Such conviction clashes with the Fed’s more circumspect guidance, yet it seems investors have already baked in their version of perfection into asset prices. That makes the risk of disappointment asymmetrically high: the likelihood of a relatively hawkish outturn seems much greater than a dovish one.

This bodes ill for gold prices. If the rate-setting FOMC committee leaves the markets wanting, non-interest-bearing and anti-fiat assets may look relatively unattractive, pushing the yellow metal lower. With traders plainly pining for policy support, such a scenario probably also carries broader risk-off implications.

CRUDE OIL PRICE RETREAT MAY BE COMPOUNDED BY FOMC, EIA DATA

That might pressure sentiment-sentiment crude oil prices. The benchmark WTI contract plunged yesterday – erasing almost half of the dramatic upward gap registered at the weekly open – as Saudi Arabia assured investors that there not be a lasting supply disruption after the weekend’s attack on its Abqaiq plant.

Amin Nasser – CEO of Saudi Arabia’s state-owned oil giant Aramco – said output from the damaged facility has been restored to about 2 million barrels per day, recovering close to half of pre-attack capacity. He added that a full rebound is expected by the end of September.

EIA inventory flow data is also on tap. A drawdown of 2.5 million barrels is expected. Leading data from API pointed to an increase of 592k barrels. If that proves to foreshadow a disappointment on official statistics, any FOMC-related downside pressure may be amplified.

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GOLD TECHNICAL ANALYSIS

Gold prices may be forming a bearish Head and Shoulders (H&S) topping pattern, with confirmation on a daily close below 1480.00 implying a measured move down though interim support in the 1437.70-52.95 zone toward the $1400/oz figure. Alternatively, a push back above 1523.05 targets the weekly chart inflection level at 1563.00 once again.

Gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices plunged back below the $60/bbl figure to challenge former resistance 58.76, the September 10 swing top. Breaking back below it on a daily closing basis puts trend line support set from early August (now at 54.28) back in play. Alternatively, a rebound back above the 60.04-84 area opens the door for a challenge of the 63.59-64.43 zone.

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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