Weekly Commodities Wrap: Metals Under Pressure As US Rate-Hike Expectations Rise

Oct 06, 12:50 pm
Welder_Orbex commodities wrap

Gold: Price Falls As Dollar Rebounds

Following the latest FOMC meeting which saw the Fed striking a far more constructive view than many were expecting, including retaining their forecast of four rate hikes by May 2018, the US Dollar has been rebounding steadily. This recovery was further propelled this week as the latest data release showed ISM Non-Manufacturing surging to a two year high. This release comes on the back of the recent ISM Manufacturing reading which soared to a thirteen year high and clearly points to strong, positive momentum in the US economy.

Consequently, gold, which typically trades inversely with the US Dollar, has been trading lower. Gold has now put in four consecutive weeks of negative movement as traders increase their expectations for a rate hike by year-end. Many market participants were concerned about the lingering damage from the recent US storms. However, these latest data points clearly show that not only is the economy on the mend, it is performing robustly; increasing expectations of a Fed rate hike before the year is out.

Gold is now firmly back under the broken April and June highs around 1295.80s which is a key pivot for the precious metal. While price remains below this level, focus is on a rout down to the next key structural support at the 1214.30s level which is the May and July low.

Silver: Futures Covering Stems Losses

Silver prices were roughly unchanged on the week at the time of writing. Short covering in the futures markets, as well as value-purchases in the cash markets, managed to provide a bounce to recover some early losses on the week. Strong industrial data out of the US also underpinned silver which has been projected to fall lower in the wake of recent US storms. Despite the bounce, however, with the US Dollar recovery gaining ground, price is likely to remain pressured.

Silver prices are potentially forming an inverse head and shoulders pattern which belies the fundamental landscape. A break back above the neckline around 18.1884 would signal fresh bullish momentum. To the downside, next key support will be a test of the May low around 16.0424

Copper: Potential Grasberg Site Disruption To Threaten Copper Supplies

Copper prices have been caught in the crossfire this week between stronger US industrial data and a resurgent US Dollar. One item which keeps copper underpinned currently is the news of further tensions between copper producer Freeport McMoRan and the Indonesian government. The Indonesian government has reportedly discovered that the copper producer has failed to pay around $450 million in royalties. The two sides have been disputing a deal to divest a 51% stake in the Grasberg to local interests in return for co-operation until 2041 – however, the deal has hit a stalling point around valuations of the stake. If a deal cannot be reached it will seriously threaten supplies from the Grasberg site and cause tightening in the copper market.

Copper is currently fighting it out around the 2.964 2015 swing high level which is a key pivot for the red metal. After selling off from fresh four yeah highs, copper traded all the way back down to retest the broken long-term bearish trend line which, for now, has provided support. Bulls will want to see a firm close above the 2015 level to encourage further upside. To the downside, the next key support will be a retest of the broken prior 2017/2016 swing high level around 2.768

Iron: China Offline For Golden Week Holiday

Iron prices remained under pressure this week as the fundamental picture continues to point to further downside in the near term. With the world’s largest iron consumer, China, away all week on the Golden Week holiday, price action is likely to be slow. The metal has been under heavy selling pressure over recent weeks as the Chinese steel market has pulled back causing a shortage of demand which is expected to persist next week once China is back online.

The slide in iron has taken price back down to test the mid-July swing low around $62 which is the last key structural support before a test of the 2017 low around $53. Price action has been extremely volatile in iron this year with a sharp 40% fall followed by a strong recovery and now a further decline.

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With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole. James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.