Oil ticks higher, gold eyes Fed meeting

Oil creeps higher after API report

Oil prices are edging higher but just like other risk assets, moves are fairly muted and have been for days. The API on Tuesday reported a larger draw than expected from the EIA release which will further put at ease any concerns at all around last week’s build, not that there really was any. But another build this week may have got people asking questions. Should EIA report along the same lines today, prices should remain well supported.

Ultimately though, it will probably all come down to Powell and his colleagues. If they pass the dovish test, we could see further gains in crude prices. Taper talk will take the wind out of the sails and could trigger some profit-taking.

Gold awaiting Fed catalyst

No instrument needs the Fed decision more than gold. It’s been in consolidation since the start of the blackout period, floating around $1,800 and waiting patiently for the next catalyst. Even if the Fed turns out to be a massive anticlimax, we should get some movement in gold again.

A dovish Fed and lower yields could see gold heading for the recent highs around USD 1,833, at which point it will face the same 50 fib test it failed before (June highs to lows). A move above here would draw attention to the 61.8 fib which falls around USD 1,850. A break of this would be very bullish.

There is so much talk around tapering, I can’t help but feel it’s going to be a huge anticlimax. Unless policymakers are starting to question the transitory nature of the inflation data we’re seeing, there seems little reason to risk a taper tantrum in the markets when solid progress is being made. Clearly, it’s coming soon but the Fed can afford to act with caution.

Should the Fed not perform, then those June lows could come into focus before too long. Immediate support comes around USD1,790 but given that it’s hovered around these levels for the last week and a half, it may not take much for that to collapse.

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