Gold Prices Echo US Dollar Drop as Market Mood Improves

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GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices hold ground despite higher yields as US Dollar drops
  • Markets may be celebrating easing Covid-19 lockdowns globally
  • Crude oil prices up with stocks, WTI poised to test above $40/bbl

Gold prices held up, brushing off higher bond yields amid firming market-wide risk appetite. The non-interest-bearing metal usually wilts when rising rates lure away investors. This time however, anti-fiat demand appeared to overpower other considerations. The risk-on sentiment tilt weighed heavily on the US Dollar, bolstering the appeal of cash alternatives. Crude oil rose alongside other cyclical assets.

This may reflect a response to further easing of Covid-19 lockdowns. Japan – the world’s third largest economy – announced near-total reopening. California – the world’s fifth-largest economy all by itself – scaled back more restrictions. Spain, England and Germany are on a similar path. This may mean bets that recently-deployed stimulus measures may finally see true transmission. After all, it can be difficult to capitalize on cheap credit and subsidized purchasing power if the economy is mostly offline by decree.

More of the same looks likely ahead. Bellwether S&P 500 stock index futures are pointing convincingly higher, implying a firmly risk-on tilt in prevailing sentiment. US new home sales and consumer confidence statistics headline the economic data docket. Signs of acute weakness are expected but they may have all-but lost their power to shock investors at this point, and with that their market-moving potential.

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GOLD TECHNICAL ANALYSIS

Gold prices have been unable to sustain momentum after breaking out of a bullish Symmetrical Triangle pattern, with negative RSI divergence warning that a downturn may be next. Clearing minor support at 1715.15 targets seemingly heartier support at 1679.81, which is in turn followed by the 38.2% Fibonacci retracement at 1645.40. Revitalizing the case for upward follow-through probably calls for a daily close above the May swing top at 1765.30.

gold price chart - daily

Gold price chart created using TradingView

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices appear poised to extend upward after establishing a foothold above the 50% Fibonacci retracement at 32.81. From here, a daily close above resistance in the 40.56-42.40 area may open the door for a test of former support near the $50/bbl figure. Returning back below the 38.2% Fib at 25.07 seems like a prerequisite for neutralizing upward pressure.

crude oil price chart - daily

Crude oil price chart created using TradingView

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— Written by Ilya Spivak, Head APAC Strategist for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter





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