GOLD & CRUDE OIL TALKING POINTS:
- Gold prices unable to capitalize as Trump threatens US-EU currency war
- Traders may expect Fed pushback on White House call to weaponize policy
- Upbeat ISM manufacturing survey may hurt gold and crude oil prices alike
Gold prices are struggling to capitalize even as trade war worries grip financial markets at the start of September. The latest escalation came just before the Labor Day holiday weekend in the US as President Donald Trump took to Twitter to bemoan “the Euro [dropping] against the Dollar ‘like crazy’, giving [the Eurozone] a big export and manufacturing advantage.”
For its part, the Euro has plunged against this backdrop, hitting the lowest level in over two years. The cycle-sensitive Australian and New Zealand Dollars as well as crude oil prices have likewise weakened. The anti-risk Japanese Yen – a frequent beneficiary of market turmoil amid the unwinding of carry trades funded in the perennially low-yielding unit – has dutifully traded higher.
Perhaps most worryingly, Mr Trump was especially irked that “the Fed does NOTHING!” despite the Greenback being “now the strongest in history.” An average of USD’s value against G10 FX majors is at a 7-year high. Such rhetoric seems to imply that the White House sees itself as engaged in a full-blown currency war, with allies in the single currency bloc as adversaries and the central bank as a weapon.
This might begin to offer clues about gold’s lackluster performance. The metal tends to rise when the markets’ mood sours because such a backdrop tends to stoke Fed rate cuts expectations, bringing down expected borrowing costs and making non-interest-bearing assets appear relatively more attractive. This piece has been noticeably absent in the latest upping of the trade war ante: priced-in policy bets have held steady.
Traders may be envisioning pushback against the weaponization of the Federal Reserve. It does not seem like too much of a stretch to suspect that Chair Jerome Powell and company might be less inclined to ease if that might be seen as compromising the central bank’s independence, a critical part of policy-making. This is especially so with an FOMC committee divided on the need for looser credit as key data holds up.
GOLD MAY STRUGGLE AS CRUDE OIL FALLS IF ISM DATA COOLS FED RATE CUT BETS
Looking ahead, S&P 500 index futures are pointing to a risk-off tilt. The ISM manufacturing survey is in focus, with the pace of factory-sector growth expected to hold steady in August after hitting a three-year low in the prior month. Anything short of a dramatic disappointment may keep gold prices capped and amplify the already defensive mood as Fed rate cut prospects deflate. Crude oil prices may fall further.
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GOLD TECHNICAL ANALYSIS
Gold prices a flirting with breaking the bounds of the near-term uptrend set from the August 1 low. Downward progress from here sees initial support at 1480.00, with a break below that targeting the 1437.70-52.95 zone. Key resistance remains at 1563.00, a weekly chart inflection level.
Gold price chart created using TradingView
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices retreated from resistance guiding them lower since late April. A daily close below the August 26 low at 52.96 opens the door to challenge support clustered near the $50/bbl figure.Alternatively, a break upward – likewise confirmed on a daily closing basis – exposes the 60.04-84 area.
Crude oil price chart created using TradingView
COMMODITY TRADING RESOURCES
— Written by Ilya Spivak, Currency Strategist for DailyFX.com
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