Gold Prices May Fall as FOMC Leaves Rate Hike Outlook Unchanged


Talking Points:

  • Gold prices may fall as the FOMC keeps rate hike outlook unchanged
  • Comments downplaying fiscal impact may help make for hawkish tone
  • Crude oil price vulnerable if EIA inventory data mirrors API estimate

Gold prices continue to tread water as investors await the FOMC monetary policy announcement. A rate hike is widely expected, with the probability of an increase implied in Fed Funds futures priced in 97 percent. This puts the focus on the accompanying forecasts update and press conference with Chair Janet Yellen.

The bar for hawkish, gold-negative outcome seems relatively low given recently sluggish news-flow and US political uncertainty. The central bank needs only to stick with the status-quo projection of three rate hikes in 2017 and signal that it is not relying on expansionary fiscal policy to justify tightening.

Crude oil prices saw an intraday recovery fizzle once again as API reported that US inventories added 2.75 million barrels last week. Official EIA figures are expected to show a 2.3 million barrel draw tomorrow. If that reading registers closer to the API projection, a selloff may follow.

Elsewhere, the International Energy Agency (IEA) will release its monthly oil market report. That seems likely point to swelling OPEC output as countries exempt from its production cut scheme ramp up capacity. This may pass unnoticed however considering the cartel admitted as much in its own monthly update.

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GOLD TECHNICAL ANALYSISGold prices continue to consolidate after touching a three-week low. A daily close below support at 1260.85 exposes the next chart inflection point at 1241.20. Alternatively, a move back above trend line support-turned-resistance, now at 1280.33 opens the door for a retest of double top resistance at 1295.46.

Gold Prices May Fall as FOMC Leaves Rate Hike Outlook Unchanged

Chart created using TradingView

CRUDE OIL TECHNICAL ANALYSISCrude oil prices remain locked in a narrow range near the $46/bbl figure. Near-term support is at 45.32, with a break below that on a daily closing basis exposing 43.79 (May 5 low, falling channel floor). Alternatively, a push above the chart inflection point at 47.12 targets the channel midline at 47.83.

Gold Prices May Fall as FOMC Leaves Rate Hike Outlook Unchanged

Chart created using TradingView

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

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