GOLD & CRUDE OIL TALKING POINTS:
- Gold prices fall with stocks as credit squeeze sparks liquidation
- Crude oil prices continue to languish, digesting earlier collapse
- S&P 500 futures hint sentiment may brighten, UofM data eyed
Gold prices fell as record-setting liquidation continued across global financial markets. The metal has failed to capitalize on the risk-off environment over the past two weeks as the markets rapidly priced in rate cuts bringing the Fed Funds rate back to zero, sapping scope for speculative gains.
In the meantime, market turmoil seized up credit markets. Financial conditions deteriorated to the worst since April 2009 – mere months after the apex of the 2008 global financial crisis – as lenders worried about borrowers’ wherewithal to pay against a rapidly souring environment closed the taps.
Aggressive selling across the market spectrum then took hold as credit-starved financial markets moved to dispose of assets and raise cash. Gold found itself on the chopping block against this backdrop while unrivaled liquidity burnished the appeal of the US Dollar and drove it higher (as expected).
Crude oil prices continued to languish in the meanwhile as that market continued to digest after a blistering selloff at the start of the week. That was triggered as the four-year OPEC+ production cap scheme unraveled after Russia and Saudi Arabia failed to reach a deal on an extension.
US CONSUMER CONFIDENCE SLUMP MAY UPEND MARKET REBOUND
Looking ahead, shell-shocked investors appear to be angling for a respite. Share prices are on the upswing in early European trade and futures tracking US stock benchmarks are pointing solidly higher. Technical studies suggest the bellwether S&P 500 may be preparing to retrace upward.
Critically, none of the underlying reasons for the recent crash appear to be resolved. Rather, traders may simply want to rebalance exposure, reducing the risk-off skew on the speculation that a flurry of policymaking over the weekend might produce a sharp opening gap higher next week.
The rebound may be aborted if University of Michigan data on US consumer confidence suggests a dramatic weakening in single most important engine of growth for the world’s largest economy: private consumption. A modest pullback is expected after a two-year high was set in February.
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GOLD TECHNICAL ANALYSIS
Gold prices are testing support marked by an 11-month rising trend line and former resistance in the 1535.03-1557.10 area. A daily close below that looks likely to set the stage for a test below the $1500/oz figure. Alternatively, returning above 1611.34 may see the swing highs below $1700/oz retested.
Gold price chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices are idling below support-turned-resistance at 34.86 (61.8% Fibonacci expansion). Breaking that exposes back-to-back barriers along the way to critical resistance just below $50/bbl. A close above that looks to be needed to neutralize the near-term bearish bias. Alternatively, a push below support at 31.11 (78.6% expansion) targets the 26.05-33 zone (100% Fib, February 2016 bottom).
Crude oil price chart created using TradingView
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— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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