Gold Prices May Fall if PCE Data Puts Fed Outlook Back in Focus

GOLD & CRUDE OIL TALKING POINTS:

• Gold prices fail to capitalize on knock-on US Dollar weakness
• Crude oil prices soar as EIA reports large inventory outflow
• US PCE inflation data may revive focus on Fed rates outlook

Gold prices marked time Wednesday, managing a narrow retracement following the prior day’s weakness but falling short of substantive trend development. Perhaps tellingly, it was unable to capitalize even as cross-winds from a Brexit-inspired GBP/USD rallyweighed on the US Dollar. The greenback’s weakness is typically a boon for the anti-fiat yellow metal.

Crude oil prices began the day with a similar retracement of earlier losses. The move accelerated higher however to mark the largest increase in five days as EIA inventory data showed stockpiles shed 2.57 million barrels last week. Economists were looking for a meager 967k barrel outflow and a leading estimate from API pointed to a narrow build.

GOLD, CRUDE OIL MAY FALL AS PCE DATA BOOSTS US DOLLAR

Looking ahead, the Fed’s favored PCE gauge of US inflation is in focus. The core on-year price growth rate is expected to return to target at 2 percent having narrowly fallen short of it in the past three months. Anything short of an improbably dramatic deviation from forecasts seems unlikely to materially alter the monetary policy outlook. It might still remind investors of the US central bank’s hawkish disposition, boosting the US Dollar and thereby weighing on raw materials prices.

GOLD TECHNICAL ANALYSIS

Gold prices are stalling at countertrend line support defining the move higher form mid-August lows. A break below this barrier would mark resumption of the dominant down trend established from mid-April, initially targeting the August 24 low at 1183.28. Alternatively, a move back abovethe August 28 high at 1214.30 paves the way for another challenge of the 1235.24-41.64 area (Dec’17 support, 38.2% Fibonacci retracement).

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices are edging toward resistance at 70.99, the 38.2%Fibonacci expansion. A daily close above that exposes the 72.88-73.02 area (May 22 high, 50% level). Alternatively, a turn back below the 23.6% Fib at 68.49 paves the way for a retest of trend support in the 64.95-66.80 zone.

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