GOLD, CRUDE OIL PRICE OUTLOOK:
- Gold prices extended higher, buoyed by a weakening US Dollar and growing inflationary pressures
- WTI surged above $67.50 as OPEC+ predicted strong demand ahead of a production policy meeting on Tuesday
- Friday’s US nonfarm payrolls data will be closely watched by traders for clues about the direction of the US Dollar
Gold prices traded higher toward a fresh four-month high during Tuesday’s APAC session. Bullion has surged over 13% since early April, underpinned by a weakening US Dollar and growing inflationary pressure. Rising price levels around the globe boosted the appeal of the yellow metal, which is widely perceived as a store of value and hedge against inflation. The DXY US Dollar Index is hovering near a five-month low of 89.78, offering an additional pillar of support to the precious metal.
The strengthening price growth outlook appears to have little impact on real yields however, with the 10-year Treasury inflation-index security staying largely unchanged at -0.85% overnight. The rate has been falling since early April as fears about a “taper tantrum” faded after Fed officials reiterated their dovish stance.
Real yield has historically exhibited a negative relationship with gold prices, because it serves as a good proxy of the opportunity cost to hold the non-interest-bearing precious metal. Their recent trends can be visualized on the chart below.
Friday’s US nonfarm payrolls report will be closely watched by traders for clues about the health of the labor market and its ramifications for the Fed’s policy guidance. If the number fails to meet an estimation of 650k, this could lead to a deeper pullback in the US Dollar and buoy bullion prices. The opposite may happen if the actual number analysts’ projections.
Gold Prices vs. 10-year Treasury Inflation-indexed Security
Crude oil prices extended higher above a key resistance level of $ 67.00 after the OPEC+ painted a positive outlook for global energy demand. The oil cartel estimated that stockpiles will drop rapidly in the second half of the year, with rising demand more than offsetting a potential increase in Iranian oil supply if a nuclear deal with the US materialize.
OPEC+ will hold a virtual ministerial meeting today to outline a production plan for July and beyond. It is widely expected that the oil committee with stick to their plan to gradually roll back production cuts implemented last year. A robust economic recovery in the US and Europe as well as the arrival of summer driving season are boosting the energy demand, lending support to the oil cartel to raise supply without hurting prices.
Production Hike Plan by OPEC + in April’s Meeting
Source: Bloomberg, DailyFX
Gold Price Technical Analysis
Technically, gold prices extended higher within an “Ascending Channel” after completing a “Double Bottom” chart pattern. Prices breached above a key resistance level at $ 1,875 (the 50% Fibonacci retracement) and have likely opened the door for further upside potential with an eye on $ 1,922 (the 61.8% Fibonacci retracement). XAU/USD stretched above the ceiling, showing signs of being temporarily overbought. Therefore, a technical pullback is possible if gold fails to breach above $ 1,922.
Gold Price – Daily Chart
Crude Oil Price Technical Analysis
WTI has likely breached above a key resistance level of $ 66.50 and thus opened the door for further upside potential. A daily close above $ 67.00 would likely intensify near-term buying pressure and carve a path for price to test a psychological resistance of 70.00. Negative MACD divergence, hints at the risk of a technical pullback however as the upward momentum appears to be fading.
Crude Oil Price – Daily Chart
Chart by TradingView
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter