Gold Prices Drop Ahead of Fed Policy Announcement

London (May 2)  Gold prices sank after April’s ISM manufacturing survey crossed the wires. While the figures showed that the overall pace of US manufacturing activity growth slowed last month, an index of input prices paid by firms was stronger than expected. That may have stoked bets on higher inflation that might beckon a steeper Fed rate hike cycle. Tellingly, US Treasury bond yields and the US Dollar rose as the yellow metal fell.

Crude oil prices also tumbled. First, soft US personal income and spending data seemed to dent the outlook for demand. Less than two hours later, Libya reported that its output capacity now exceeds 760k barrels per day, the highest since December 2014. Taken together, these headlines appeared to feed speculation that OPEC’s production cut scheme will be insufficient to boost prices in a lasting way.

Looking ahead, a lull in top-tier US economic news-flow is likely to keep gold prices action muted as markets look ahead to the FOMC monetary policy announcement as the next major inflection point. Crude oil prices may get their next direction lead from API weekly inventory flow figures. The official EIA release due the following day is expected to show a draw of 3.17 million barrels.

What will drive crude oil and gold prices through mid-year? See our forecasts to find out!

GOLD TECHNICAL ANALYSIS – Gold prices appear vulnerable to deeper losses after sellers secured a daily close below support at 1258.62, the 14.6% Fibonacci expansion. The next downside barrier is in the 1235.91-41.50 area (October 7 2016 low, 23.6% level), with a push through that targeting a horizontal inflection point at 1218.90. Alternatively, a turn back above 1258.62, now recast as resistance, paves the way for another challenge of falling trend line resistance at 1285.31.

Source: DailyForex