Gold Prices May Fall Despite Cautious Tone from Federal Reserve

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GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices mark time as all eyes turn to FOMC rate decision
  • Worried Fed rhetoric may inspire US Dollar liquidity demand
  • Crude oil price bounce fizzles, now within hair of a breakdown

Gold prices are idling as all eyes turn to the FOMC rate decision. The central bank is widely expected to keep policy as-is, putting the spotlight on the statement accompanying the announcement as well as the subsequent press conference with Chair Jerome Powell. Traders will carefully parse both for language hinting at where officials intend to steer in the months ahead.

The rate-setting committee faces a quandary. Inflation expectations are stable near their 2 percent objective and unemployment is near 50-year lows, so their mandated objectives appear met. However, leading activity survey data warns of a sharp downturn in the business cycle at the start of the second quarter after an already suspect first three months. Political risks from the US-China trade war to Brexit remain a worry too.

On balance, this sets the stage for another appeal to the Fed’s luxury of patience. Tailoring official language to telegraph that worries about the growth have become relatively more acute may be deployed as a kind of rhetorical stimulus. That may be somewhat ineffective however considering the markets’ growing conviction in a rate cut before year-end is already more dovish than official projections seeing standstill.

This means that any defensive shift in the Fed’s verbiage is unlikely to meaningfully alter status-quo policy bets. It may fuel global slowdown fears however, souring market sentiment. A supportive drop in bond yields may then clash with US Dollar gains if the currency continues to attract haven demand, leaving gold without clear-cut direction cues. The influence of the Greenback has seemed dominant recently however.

CRUDE OIL PRICES MAY FALL ON FOMC, INVENTORY DATA

Crude oil prices attempted to rebound after Saudi Energy Minister Khalid Al-Falih said OPEC and its allies may extend their output cut scheme through the end of the year. The current iteration of the effort expires in June. A risk-off start on Wall Street capped gains however. While shares later recovered, crude finished near daily lows as API reported that US inventories added a weighty 6.81 million barrels last week.

Looking ahead, any Fed-inspired risk aversion is likely to weigh sentiment-geared assets including oil. Selling pressure might be compounded if official EIA inventory flow statistics echo yesterday’s API projections. Consensus forecasts call for a far more modest 1.5-million-barrel rise. Pre-positioning for the expiry of Iran sanctions wavers Thursday may slow downside progress however.

See the latest gold and crude oil forecasts to learn what will drive prices in the second quarter!

GOLD TECHNICAL ANALYSIS

Gold prices continue to stall above support in the 1260.80-63.76 area. A daily close below this barrier initially targets the 1235.11-38.00 zone. Alternatively, a break above support-turned-resistance at the neckline of a bearish Head and Shoulders pattern – now at 1290.00 – puts the $1300/oz figure in focus. The H&S setup broadly implies 1215.00 as a measured downside objective.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are pinned to trend support guiding the rise from December lows, now at 63.54. A daily close below it neutralizes the near-term uptrend and initially exposes 60.39. A dense layer of resistance runs through 67.03, with a break above that opening the door for a test of the $70/bbl figure.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

— 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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