Gold Price Gains May Be Capped as US Dollar Haven Demand Returns

CRUDE OIL & GOLD TALKING POINTS:

• Gold prices shot higher as BOEs Carney spooked financial markets

• Crude oil prices sank in risk-off trade, validating bearish chart cues

• Services ISM data may boost global slowdown fears, lift US Dollar

Gold prices shot higher while bond yields dropped as Bank of England Governor Mark Carney spooked the markets, saying the outlook for economic growth is “considerably weaker” in the second quarter as global trade tensions increase downside risks. That bolstered the appeal of non-interest-bearing assets epitomized by the yellow metal.

The risk-off jolt also weighed on cycle-sensitive crude oil prices. A broader market-wide selloff did not materialize however, with stocks recovering into the session close after a brief downswing as Mr Carneys ominous remarks fueled Fed rate cut speculation once again. The priced-in 2019 policy path implied in Fed Funds futures tellingly tilted toward the dovish side of the spectrum as he spoke.

GOLD MAY NOT CAPITALIZE AS ISM DATA STOKES GLOBAL SLOWDOWN FEARS

Looking ahead, the US services ISM survey takes top billing. It is expected to show that growth in the economy‘s largest sector slowed in June after brief rebound from two-year lows in the prior month. US data flow has tended to undershoot baseline forecasts since the beginning of the year, warning that analysts’ models are overly rosy and setting the stage for a disappointing outcome.

Tellingly, yesterdays rise in Fed stimulus bets did not translate into notable US Dollar weakness. That seems to endorse the idea that markets have already priced in about as much FOMC stimulus as can probably occur, allowing the Greenback to benefit from liquidity demand amid de-risking once again. This means that a soft ISM print that amplifies global slowdown fears might well drive it higher.

Gold prices might have a hard time extending upward in this scenario as the benchmark currencys resilience undercuts the appeal of anti-fiat alternatives. Still lower bond yields may limit downside progression all the same however. Crude oil prices may succumb to risk-off pressure in a more straightforward way, though EIA inventory data may limit losses if it echoes API reports of a 4.97-million-barrel drawdown last week.

Get the latest crude oil and gold forecasts to see what will drive prices in the third quarter!

GOLD TECHNICAL ANALYSIS

Gold prices rebounded from support guiding them higher since late May, scoring the largest one-day rise in three years. Resistance marked by the confluence of the August 2013 high the underside of support-turned-resistance set from December 2016 at 1433.85 is back under pressure, with a daily close above that opening the door to probe past the $1500/oz figure. Trend line support is now at 1388.02. A move below that eyes a dense support bloc running through 1346.75.

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices turned lower as expected, breaking support at 57.24. Sellers now aim to challenge the 54.55-55.37 area, with a further breach of that targeting the 50.31-51.33 zone. Alternatively, a turn back above resistance at 57.88 opens the door for a retest of the 60.39-95 region.