Commodity Trade Mantra

Brace for a Correction in Gold, Crude Oil Prices on Pre-Positioning for FOMC

Brace for a Correction in Gold, Crude Oil Prices on Pre-Positioning for FOMC

Brace for a Correction in Gold, Crude Oil Prices on Pre-Positioning for FOMC

Talking Points:

  • Crude oil chart setup hints a top may be forming below $52/bbl
  • Gold prices rise to 3-week high, seemingly exposing May high
  • Corrective flows may bode ill for commodities into the week-end

Crude oil prices declined alongside the S&P 500 as risk appetite softened across the financial markets. Souring sentiment may reflect pre-positioning ahead of next week’s potent news-flow – notably, the FOMC rate decision – with traders using a lull in high-profile event risk to book profits and move toward a more neutral posture. The defensive mood carried over into Asian hours and looks set to continue into the final hour of trading week as stock index futures edge cautiously lower.

A broadly corrective tone may also bode ill for gold prices after the metal hit the highest level in three weeks. The move played out inversely of a sharp drop in front-end breakeven rates, a measure of priced-in inflation expectations derived from the difference in nominal and real bond yields. This dynamic may imply that traders interpreted softening price-growth bets as hinting at a dovish Fed outlook, boosting the relative appeal of non-interest-bearing assets.

GOLD TECHNICAL ANALYSISGold prices appear poised to test May swing highs after breaking trend line resistance capping gains over the past month. A break above the 1297.14-1303.62 area marked by the 38.2% Fibonacci expansion and the May 2 high exposes the 50% level at 1327.29. Alternatively, a move back below the 23.6% Fib at 1259.84 targets the 14.6% expansion at 1236.85.

Gold, Crude Oil Prices May Fall on Pre-Positioning for FOMC

CRUDE OIL TECHNICAL ANALYSISCrude oil prices put in a Bearish Engulfing candlestick pattern, hinting a top may be taking shape below the $52/barrel figure. A daily close below the intersection of a rising trend line and the 61.8% Fibonacci expansion at 50.13 exposes the 50% level at 48.77. Alternatively, a push above the 76.4% Fib at 51.82 targets the 100% expansion at 54.54.

Gold, Crude Oil Prices May Fall on Pre-Positioning for FOMC

 

Courtesy: Ilya Spivak

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