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Gold Prices May Drop if the FOMC Sours Stimulus Expansion Hopes

Gold Prices May Drop if the FOMC Sours Stimulus Expansion Hopes

Ilya Spivak, Head Strategist, APAC

GOLD & CRUDE OIL TALKING POINTS:

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Gold prices rose alongside stocks yesterday as an upswell in market-wide sentiment weighed on the anti-risk US Dollar, bolstering the metal’s anti-fiat appeal. From here, all eyes are likely to be focused on the year’s final Federal Reserve monetary policy announcement.

The US central bank is unlikely to make any overt changes to the policy mix. Still, the guidance embedded in an updated set of forecasts for growth, inflation, and the target rate path – as well as clues in Chair Powell’s post-announcement presser – may offer plenty of fodder for volatility.

Recent comments from Fed officials including Mr Powell suggest that the recovery from the initial Covid shock in early 2020 has surprised on the upside. Such optimism may be buoyed further by the now on-going vaccine rollout and cautiously encouraging steps toward a deal on further fiscal stimulus.

On balance, this may help to cement the sense that the current easing cycle is all but over. Tightening is almost certainly not in scope near term, but the scattering of hopes for added accommodation may nevertheless weigh on risk appetite and boost the battered Greenback. All that would bode ill for bullion.

GOLD TECHNICAL ANALYSIS

Gold prices are retesting the support-turned-resistance in the 1860-70.10 area. A daily close above that may set the stage for a challenge of the 1911.44-28.82 zone. Alternatively, slipping back below the December 14 low at 1819.16 may see prices piece $1800/oz anew to challenge the 1747.74-65.30 region.

Gold price chart - daily

Gold price chart created using TradingView

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CRUDE OIL PRICES MAY FALL ON HANDS-OFF FOMC, EIA INVENTORY DATA

Yesterday’s chipper market mood was understandably supportive for cyclically-minded crude oil prices. Tellingly, the WTI benchmark rose in lockstep with the bellwether S&P 500 stock index. Another unexpectedly large rise in US inventories reported by API report did little to slow momentum.

FOMC guidance now seems critical. Fading bets on monetary stimulus expansion are likely to be a headwind as overall risk appetite wilts, pushing prices lower. Official EIA inventory data seen showing a 3.5-million-barrel draw may disappoint if API’s projection proves telling, compounding selling pressure.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are inching toward resistance near the $50/bbl figure but negative RSI divergence warns that upside momentum may be ebbing, which could set the stage for a reversal. Making the case for downside follow-through probably calls for confirmation on a daily close below 41.46.

Crude oil price chart - daily

Crude oil price chart created using TradingView

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COMMODITY TRADING RESOURCES

--- Written by Ilya Spivak, Head Strategist, APAC 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.

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