Gold Prices May Bounce as Markets Eye ECB Meeting, US CPI Data

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices drop to four-week low after near-term support break
  • Crude oil prices rise alongside stocks amid risk appetite recovery
  • Commodities may retrace with ECB meeting, US CPI data eyed

Gold prices continue to track lower inversely of a recovery in bond yields. The move seems to reflect ebbing political risk in Italy, Hong Kong and the UK as well as hopes for progress in another round of US-China trade negotiations. Higher rates tarnish the appeal of non-interest-bearing assets, like the yellow metal.

Meanwhile, cycle-sensitive crude oil prices have taken the opposite side of the same narrative. The same pro-risk push across global financial markets that has weighed on gold (as well as anti-risk currencies like the Yen and US Dollar) seems to have driven the WTI benchmark upward alongside stocks.

GOLD MAY REBOUND AS CRUDE OIL BACKTRACKS BEFORE ECB, US CPI

A relatively quiet day on the economic data docket offers relatively few roadblocks for established momentum, but market cheer may ebb all the same as traders show restraint ahead of Thursday’s heavy-duty event risk. The ECB rate decision and US CPI data are due.

The Eurozone monetary authority is widely expected to boost stimulus. That will make it hard for President Mario Draghi and company to delivery a sentiment-boosting dovish surprise. Meanwhile, core inflation in the US is expected to accelerate, which may be seen as reducing scope Fed rate cuts.

On balance, this means that market participants might be reluctant to commit to big risk-on bets, with some that have already participated in the week-long sentiment recovery even moved to reduce exposure. This could nudge gold upward even as it pulls down on crude oil in the near term.

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GOLD TECHNICAL ANALYSIS

Gold prices continue to push lower having established a swing top below resistance at 1563.00 – a weekly chart inflation point – as expected. Initial support is at 1480.00, the August low, with a daily close below that setting the stage for a test of the 1437.70-52.95 area.

Gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices broke resistance capping them since late April, opening the door to challenge the 60.04-84 area. For sellers to reclaim the initiative, a daily close below upward-sloping support set from the August 7 low – now at 54.57 – seems necessary. Downside hurdles at 52.96 and near the 50.00 mark follow.

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

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