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Gold Prices Eye Bond Yields, US Dollar Response to Earnings Reports

GOLD & CRUDE OIL TALKING POINTS:

  • Gold prices unable to hold gains as sentiment shrugs off crude oil price spike
  • US Dollar, bond yields divergence eyed as Q1 earnings threaten risk aversion
  • Chart positioning argues for gold weakness, hints crude oil may turn lower

Gold prices were unable to sustain early-session gains, erasing its intraday advance to close Monday with a narrow loss. The metal enjoyed what seemed like reflexive support as traders scrambled to respond to news that the US will end Iran sanctions waivers.

That announcement understandably launched crude oil prices upward and stoked risk aversion as markets pondered the move’s potential adverse knock-on effects. A lasting upshift in energy prices bodes ill for already shaky global growth. Trade tensions with US allies like the EU and Japan may be upset.

Oil managed to sustain most of its rise, but sentiment recovered as Wall Street came online. Bond yields rose alongside shares as haven demand for Treasuries receded, undermining the relative appeal of non-interest-bearing assets. Not surprisingly, that saw gold’s gains evaporate.

INCOMING EARNINGS REPORTS MAY SOUR MARKET MOOD

From here, it seems telling that yesterday’s midday upturn in risk appetite was not discernibly triggered by discrete catalyst. Rather, the rise appeared to reflect an “evening-out” of exposure ahead of a busy week on the economic and corporate earnings calendars.

With that in mind, the case for follow-through seems suspect if the collective message from 26 constituents of the bellwether S&P 500 index due to report first-quarter results today is downbeat. The trend for this earnings season so far is not encouraging.

With close to a fifth of S&P 500 companies having reported, the trend in declining sales and earnings growth from the second quarter of last year is set to continue. In fact, markets are on pace to see the first quarter of negative on-year earnings growth in two years.

On balance, this sets the stage for a broadly defensive narrative. Crude oil may weaken alongside other cycle-sensitive assets against this backdrop. The response from gold will continue to depend on the relative magnitude of divergent moves in yields and the US Dollar.

See the latest gold and crude oil forecasts to learn what will drive prices in the second quarter!

GOLD TECHNICAL ANALYSIS

Gold prices failed to sustain even a modest upswing to retest support-turned-resistance at the neckline of a bearish Head and Shoulders (H&S) chart pattern, slipping back toward the 4-month low set last week. Initial support is in the 1260.80-63.76 area, with a break below that targeting the 1235.11-38.00 zone next. The H&S setup implies a larger decline to 1215. A daily close back above the neckline – now at 1281.70 – opens the door for a retest of the $1300/oz figure.

Gold price chart - daily

CRUDE OIL TECHNICAL ANALYSIS

Crude oil prices shot to a six-month high, testing resistance in the 66.09-67.03 area. A daily close above that puts the $70/bbl figure in the crosshairs. Negative RSI divergence warns of ebbing upside momentum however, warning a that the surge may not prove lasting. Confirming a substantive reversal from here calls for a daily close below rising trend support set from December, now at 62.16. Clearing that initially targets 60.39, followed by the 57.24-88 zone thereafter.

Crude oil price chart - daily

COMMODITY TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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