Gold Plunges as Fed QE Reduction Bets Scatter Demand

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Gold prices plunged to their lowest level in close to three years as supportive US economic data drive Fed QE reduction bets. Revised GDP figures are ahead.

Talking Points

  • Gold, Silver Plunge as Anti-Fiat Demand Evaporates on Fed QE Taper Bets
  • Oil and Copper to Follow Precious Metals Lower if US GDP Outperforms

Gold and silver are trading sharply lower in the aftermath of yesterday's strong set of US economic data . Prices began to plunge early in the Asian session and have remained under pressure through European hours as signs of firming US economic recovery bolster the case for a relatively sooner move to reduce monthly asset purchases by the Federal Reserve. This is chipping away at demand for assets seen as a hedge against the dilution effects of monetary stimulus on paper currencies. Indeed, total gold ETF holdings - a proxy for investment demand - are now at their lowest in over three years.

Looking ahead, all eyes are on the third revision of first-quarter US GDP figures. Expectations call for the annualized economic growth rate to print at 2.4 percent, in line with prior estimates. A revision upward is likely to be perceived as further encouraging the FOMC to begin tapering the QE program , compounding downward pressure on precious metals. Recent price action suggests such an outcome may likewise hurt risk appetite, punishing sentiment-geared crude oil and copper prices. Needless to say, a revision downward may yield the opposite response.

Crude Oil Technical Analysis (WTI) - Prices put in a bullish Piercing Line candlestick pattern above support at a rising trend line set from mid-April, hinting a rebound may be ahead. Initial resistance is at 95.88, the 23.6% Fibonacci expansion, with a break above that exposing the 38.2% level at 97.87. Alternatively, move beneath trend line support (now at 93.85) exposes an upward-sloping barrier set from the May 1 low at 92.0 9 , followed by the June 3 bottom at 91.23.

D aily Chart - Created Using FXCM M arketscope 2.0

Gold Technical Analysis (Spot) - Prices are testing below the 100% Fibonacci expansion at 1273.77 to challenge the 123.6% level at 1238.38. A break below that eyes the 138.2% Fib at 1216.49. Alternatively, a move back above 1273.77 sees resistance at 1309.16, the 76.4% expansion.

Daily Chart - Created Using FXCM Marketscope 2.0

Silver Technical Analysis (Spot) - Prices are testing below support at 19.66, the 76.4% Fibonacci expansion, to challenge the 100% level at 18.53. A break below that exposes the 123.6 Fib at 17.40. Alternatively, a move back above 19.66 aims for the 61.8% expansion at 20.36.

Daily Chart - Created Using FXCM Marketscope 2.0

Copper Technical Analysis ( COMEX E-Mini) - Prices are testing support at 3.024, the 50% Fibonacci expansion, with a break lower exposing the 61.8% level at 2.936. Initial resistance is at 3.112, the 38.2% Fib. A reversal above that targets the 23.6% expansion at 3.221.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities

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