Weekly Commodities Wrap

Resurgent US Dollar Sends Gold Lower

2 27

Gold: Gold Prices Fall Back As US Dollar Rebounds

The US Dollar managed to further its recovery this week, weighing on gold prices. Gold prices had been rising steadily over the last two months fuelled by receding US December rate hike expectations and an increase in geopolitical tensions linked to the conflict between North Korea and the US. However, with news wires notably quieter regarding North Korea, some of the safe haven demand that has been present over recent weeks has abated in gold, leading to profit taking and reversal plays.

The US Dollar rebound seems a little more technical at this stage. After hitting a major multi-year support level, it seems that some players have been taking profit on their positions, leading to the pop we have seen. However, expectations for a Fed rate hike in December are still weakening by the week and unless we see some strong inflation data, the USD sell-off is likely to resume. For now, it seems that the pullback in gold is likely only temporary and with the persistent risk of an escalation in tensions between North Korea and the US, the potential for further upside remains elevated.

The rally in Gold has seen price rising up to test the rising channel resistance line formed off the underside of the May and October 2016 lows. The next key support for gold will be a retest of the broken 1295 – 1300 area which was the prior 2017 high and a key resistance level earlier in the year. Below there the rising channel support should also provide technical support. To the topside, the next key resistance level will be a test of the 2016 highs around 1367 – 1374.

Silver: Rally Continues As Silver Shrugs Off US Storms

Silver prices fell back this week, reversing gains from last week despite as midweek selling took hold. Silver has been stronger over the last few weeks as rising risk aversion linked to geo-political tensions have boosted the metal despite some pressure from the hurricanes that have affected the US over the last week.

The rally in silver has taken price up through the bearish trend line that has capped price from mid 2016. The rally has also taken price above the 50% retracement from the 2016 highs, both of these broken levels should now provide support if retested with focus remaining on further upside. The next key resistance for silver will be the 61.8% from the 2016 which coincides with the current 2017 highs. This will be a key pivot for silver and a break above this level should pave the way for further upside.

Copper: Prices Decline As Production Picks Up Again

The red metal extended its declines this week as pressure from the US Dollar recovery has weighed on price. The latest industry reports show that mine production is on the increase following disruptions earlier in the year from worker’s strikes and severe weather incidents with Chile reporting an increase in output and industry commentators noting that the dispute between the Indonesian government and Freeport McMoRan appears to have been resolved. The latest positioning data shows that net-long positions in copper have been reduced since August but still remain near December 2016’s highs.

The sell-off in copper this week has seen price trade back down to retest the broken 2015 swing high around 2.962. This is a pivotal level for copper and a break below here will bring a retest of the broken long term bearish trendline from 2011 highs into play. Key resistance remains at the mid 2014 high around 3.277 which will only remain in short term focus if 2.962 holds.

Iron: Price Rebounds As China Steel Picks Up

Iron ore prices rebounded this week as linked to the recovery in Chinese steel prices. Chinese steel mills have been upping their purchases of higher grade iron ore leading to firmer prices this week. However, port inventory stocks remain at elevated levels and steel prices could weaken again at any point. Steel stocks have risen 3% over the last week and a further build in inventory could start to weigh on prices, bringing iron ore down simultaneously.

Iron prices rebounded off their local $74 low this week. After declining from the late August high around $80 and putting in a lower high last week, price has entered choppier, more range bound conditions. This range is likely to persist in the near term as the market refocuses. A break of the $74 low will open up the way for a deeper move lower while a break of the $80 high should strengthen bullish conviction.

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