(May 18, 2017 - by Ilya Spivak)

  • Gold prices rise most in 11 months on US political uncertainty
  • Crude oil prices succumb to risk aversion after EIA-driven gain
  • Hawkish comments from Fed’s Mester may temper gold rally

Gold prices raced higher as worries about political instability in the US swept financial markets. Capital fled for the safety of Treasury bonds, pushing yields lower. The prospect of market turmoil also cooled Fed rate hike speculation, flattening the priced-in tightening outlook implied in interest rate futures and sinking the US Dollar. Not surprisingly, all this proved supportive for non-yielding and anti-fiat assets.

Meanwhile, crude oil prices rose as EIA inventory data showed stockpiles shed 1.75 million barrels last week. While the draw proved to be smaller than the markets’ consensus forecast calling for a 2.47 million barrel outflow, the outcome was clearly more supportive than the leading API figures published in the prior session. That report argued for a build of 882k barrels over the same period.

Looking ahead, a deepening slump in S&P 500 futures ahead of the opening bell on Wall Street hints that another risk-off day looms ahead. The WTI benchmark is following suit, hinting that broader negativity may overshadow asset-specific considerations. Gold prices may continue to thrive as yields wither but hawkish-leaning comments from Cleveland Fed President Loretta Mester may temper gains somewhat.

GOLD TECHNICAL ANALYSIS – Gold prices scored their largest gain in almost 11 months after the formation of a bullish Morning Star candlestick pattern signaled recovery, as expected. Pivotal resistance now looms at 1280.35 (trend line, 38.2% Fibonacci expansion), with a daily close above that exposing the 50% level at 1300.73. Alternatively, a turn back below the 23.6% Fib at 1255.15 paves the way for a retest of the 14.6% expansion at 1239.61

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