Gold Prices May Extend Drop from Chart Barrier as US Dollar Gains

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices rejected at chart resistance, eyeing manufacturing ISM data
  • Already-dovish Fed view may leave room for USD rise in risk-off trade
  • Crude oil prices look vulnerable as OPEC meets to discuss output cuts

Gold prices retreated in the wake of the weekend’s G20 summit, where the US and China decided to restart trade negotiations. The move buoyed sentiment, sending bond yields higher and undercutting the appeal of non-interest-bearing alternatives epitomized by the yellow metal. Crude oil prices rose amid the generally risk-on atmosphere, tracking a rise in bellwether S&P 500 index futures.

GOLD PRICES AT RISK IF US DOLLAR GAINS ON SOFT ISM DATA

Looking ahead, the spotlight turns to the US manufacturing ISM survey. It is expected to show that factory-sector growth slowed for a third consecutive month in June, putting it at the lowest level in almost three years. US news-flow has tended to undershoot baseline forecasts since the beginning of the year, opening the door for a still-more ominous result.

A disappointment that points to deeper deterioration in the US growth might sour the markets’ mood. This might have limited scope to inspire a shift in Fed policy bets considering the dramatic dovish pivot that has already played out. Investors’ baseline assumptions implied in Fed Funds futures call for three cuts before year-end alongside the already telegraphed conclusion of the QT balance sheet reduction effort.

With that in mind, the US Dollar may have room to rise in risk-off trade as liquidation bolsters liquidity demand. That might weigh on gold prices, although a concurrent decline in yields could limit downside progress. Cycle-sensitive crude oil prices might also suffer. However, comments form an OPEC meeting suggesting an extension of coordinated output cuts is on the menu may somewhat deter sellers.

Did we get it right with our crude oil and gold forecasts? Get them here to find out!

GOLD TECHNICAL ANALYSIS

Gold prices pulled back from resistance marked by the confluence of the August 2013 high the underside of support-turned-resistance at set from December 2016, at 1433.85. A daily close below initial support at 1392.08 exposes 1375.15 next. Alternatively, a breach of resistance opens the door for a test above the $1500/oz figure.

Gold Prices May Extend Drop from Chart Barrier as US Dollar Gains

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are hovering below support-turned-resistance in the 60.39-95 area, with negative RSI divergence warning of ebbing upside momentum. This might precede a turn lower. A break below support at 57.24 exposes the 54.55-55.37 zone. Alternatively, a push above resistance targets the 63.59-64.43 region.

Gold Prices May Extend Drop from Chart Barrier as US Dollar Gains

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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