Gold Prices May Struggle as the Fed Moves to Wait-and-See Mode
GOLD & CRUDE OIL TALKING POINTS:
- Gold prices struggle to extend rise after FOMC rate decision
- Profit-taking on the recent rally might bring gold downward
- Crude oil prices down with risky assets, Wedge hints at turn
Gold prices swung between gains and losses but ultimately made little headway as the FOMC telegraphed a wait-and-see policy approach, holding back on expanding the stimulus toolkit. While the remarks from Fed Chair Powell were duly somber and firmly dovish, officials seemed to clearly signal that novel programs – like a ‘yield curve control’ regime – are unlikely to appear in the near term.
That left the markets somewhat unimpressed. After a blistering four months of recovery across pro-risk assets, one might be given to wander how much of the rally’s underlying narrative remains to be priced in. The markets have been roaring higher having bottomed in late March as the Fed launched an open-ended QE effort and other liquidity-boosting schemes. That seems to have nipped a credit crisis in the bud.
If the trends built around this story have truly run their course, a round of profit-taking is likely to follow. That bodes ill for gold. Crude oil prices may also face selling pressure as market-wide risk appetite sours amid worries that the Fed is coasting even as US-China tensions swell and a repeat Covid-19 viral wave gathers steam. A widely expected plunge in second-quarter US GDP may not much upset these dynamics.
GOLD TECHNICAL ANALYSIS
Gold prices are digesting gains near resistance at 1985.67, the 100% Fibonacci expansion. A daily close above this barrier is likely to target the 123.6% level at 2059.74 next. Alternatively, a reversal lower that puts prices back below the 78.6% Fib at 1918.49 may open the door to probing the 61.8% expansion at 1865.76.
Gold price chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices have formed a Rising Wedge chart formation, which is typically bearish. Negative RSI divergence bolters the case for losses. A daily close below the wedge bottom eyes the 34.78 inflection level next. Alternatively, push above resistance in the 42.40-43.88 area targets the $50/bbl figure thereafter.
Crude oil price chart created using TradingView
COMMODITY TRADING RESOURCES
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--- Written by Ilya Spivak, Head APAC Strategist for DailyFX
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.