Gold Prices May Turn Lower If Bearish Technical Setup Plays Out

London (Jan 29)  Gold prices marked time on Friday as markets digested a drop inspired, a move inspired by comments from President Donald Trump. He voiced support for a strong US Dollar, driving the benchmark currency upward and punishing the standby anti-fiat alternative by extension. The remarks contradicted Treasury Secretary Steven Mnuchin, who seemed to praise depreciation as a boost for exports.

Meanwhile, crude oil prices reveled in a broad-based improvement of market sentiment, with the WTI benchmark rising alongside futures tracking the S&P 500. Investors shrugged off disappointing fourth-quarter US GDP data, opting to focus on an impressive 2.9 percent jump durable goods orders. That was the largest increase in six months. 

A conciliatory speech from President Trump at the World Economic Forum in Davos, Switzerland probably helped as well. The often-combative Republican envisioned a future where everyone – not just the US – can prosper. Perhaps most importantly, he came out in favor of “open trade”, seemingly soothing some worries about his previously protectionist rhetoric.

Looking ahead, the Fed’s preferred PCE inflation gauge is in focus. The core on-year growth rate is projected to hold at 1.5 percent, matching a five-month high set in November. Follow-through may be limited however as traders withhold directional conviction ahead of the upcoming FOMC policy announcement. US stock index futures are pointing lower, hinting a cooling of risk appetite may bring commodity prices lower. 

See our free guide to learn what are the long-term forces driving crude oil prices!

GOLD TECHNICAL ANALYSIS – Gold prices produced a bearish Dark Cloud Cover candlestick pattern coupled with negative RSI divergence, hinting a top may be taking shape. A daily close below 1344.74 (January 15 high, trend line) exposes the 1316.50-25.96 area (January 4 high, 38.2% Fibonacci retracement). Alternatively, a push above the 38.2% Fib expansion at 1365.68 targets the 50% level at 1378.43.

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