Gold Prices Eye US Dollar Response Amid Market Meltdown

Gold prices soared as the US Dollar retreated from post-FOMC highs, boosting the appeal of anti-fiat alternatives. What started as corrective retracement for the Greenback accelerated into an outright selloff after President Donald Trump refused to sign a stop-gap spending bill to avert a government shutdown on Friday. He insisted any such measure must include funding for a wall along the Southern US border.

Worries about how fiscal drag from a shutdown might compound already slowing economic growth weighed on market-wide risk appetite. Cycle-sensitive crude oil prices dropped alongside the bellwether S&P 500 stock index. It touched the lowest level in 16 months intraday before late-session bounce. Nevertheless, it registered the sixth consecutive close on the downside.

CRUDE OIL MAY FALL, GOLD EYES US DOLLAR IN RISK-OFF TRADE

Looking ahead, turmoil in Washington DC is likely to remain at the forefront for financial markets. As if the threat of a shutdown were not enough, the administration was roiled by the sudden resignation of Defense Secretary James Mattis. The departure was punctuated by the revelation of sharp policy differences between Mattis and the President.

Mood-setting S&P 500 futures dutifully pointed lower, signaling a risk-off bias into the end of the trading week. That might bode ill for crude oil prices. Gold might find fuel for gains if the dour mood weighs on bond yields, burnishing the relative appeal of non-interest-bearing assets. Gains may be limited however if the US Dollar rediscovers its capacity to capitalize on haven demand.

GOLD TECHNICAL ANALYSIS

Gold prices are testing resistance in the 1257.60-66.44 zone, an area marked by the top of a rising channel in play since mid-August. A daily close above it exposes the underside of former support set from December 2015, now at 1274.87. Negative RSI divergence points to ebbing upside momentum however, hinting a reversal might be in the cards. Breaking support in the 1233.60-41.80 region opens the door for a test of the channel floor.

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