Commodities: Gold Rebound May Be Short-Lived on US Inflation Drop

DailyFX

Gold prices are correcting higher ahead of the opening bell on Wall Street but an expected drop in US inflation may undermine upward momentum.

Talking Points

  • Gold and Silver Rebound May Be Contained by US CPI Decline
  • Crude Oil, Copper Look to US Housing Data to Extend Recovery

Commodity prices are correcting higher as financial markets digest yesterday’s aggressive flare-up in risk aversion. Sentiment-linked crude oil and copper prices are following S&P 500 index futures higher ahead of the opening bell on Wall Street.

Risk appetite may find added fuel from expected improvements in Housing Starts and Building Permits. US economic data has increasingly underperformed relative to economists’ forecasts since late March however, keeping the door open for downside surprises to punish sentiment anew.

The recovery in gold and silver may be capped even in the event of a broadly risk-on scenario as signs of ebbing inflation sap anti-fiat demand. The US Consumer Price Index report is penciled in to show the year-on-year price growth rate slowed to 1.6 percent in March, matching a six-month low recorded in January.

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WTI Crude Oil (NY Close): $88.71 // -2.58 // -2.83%

Prices declined as expected after putting in a Bearish Engulfing candlestick pattern below resistance at the underside of a previously broken rising trend line set from the March 4 low. Sellers are now testing below support is at 86.67, the 123.6% Fibonacci expansion, with a break below that exposing the 138.2% level at 85.38. Near-term resistance is at 88.77, the 100% Fib.

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Commodities_Gold_Rebound_May_Be_Short-Lived_on_US_Inflation_Drop_body_Picture_4.png, Commodities: Gold Rebound May Be Short-Lived on US Inflation Drop

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Gold (NY Close): $1347.95 // -135.05 // -9.11%

Prices took out support at 1397.50, the 100% Fibonacci expansion. Sellers now target the 123.6% mark at 1303.50, with a break below that aiming for the 138.2% Fib at 1245.35. The 1397.50 mark has been recast as near-term resistance. A reversal back above that eyes the 76.4% expansion at 1491.50.

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Commodities_Gold_Rebound_May_Be_Short-Lived_on_US_Inflation_Drop_body_Picture_3.png, Commodities: Gold Rebound May Be Short-Lived on US Inflation Drop

Daily Chart - Created Using FXCM Marketscope 2.0

Spot Silver (NY Close): $22.76 // -3.25 // -12.50%

Prices are correcting higher after taking out support at 24.12, the 100% Fibonacci expansion. This barrier has been recast as near-term resistance, with a reversal back above it targeting the 76.4% mark at 26.77. Near-term support is at 21.46, the 123.6% Fib.

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Commodities_Gold_Rebound_May_Be_Short-Lived_on_US_Inflation_Drop_body_Picture_2.png, Commodities: Gold Rebound May Be Short-Lived on US Inflation Drop

Daily Chart - Created Using FXCM Marketscope 2.0

COMEX E-Mini Copper (NY Close): $3.272 // -0.078 // -2.33%

Prices are testing support at 3.265, the 38.2% Fibonacci expansion. A break downward exposes the 50% level at 3.208. Near-term resistance is at 3.336, the 23.6% Fib, with a move back above that eyeing the April 9 swing high at 3.451.

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Commodities_Gold_Rebound_May_Be_Short-Lived_on_US_Inflation_Drop_body_Picture_1.png, Commodities: Gold Rebound May Be Short-Lived on US Inflation Drop

Daily Chart - Created Using FXCM Marketscope 2.0

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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