Silver: Silver Tracks Gold Higher
Silver prices tracked their golden counterpart higher this week as the market responded with slight disappointment to the Fed’s 0.25% rate increase. Silver prices had been under heavy selling pressure over recent weeks leading up to the rates meeting, but have since stabilized.
Silver prices tested the support level highlighted last week and bounced sharply. Focus is now on a retest of the broken triangle pattern low which will act as a pivot for near term direction.
Gold: Post-FOMC USD Sell-Off Sees Gold Rallying
Gold prices saw a volatile reversal higher this week, after suffering initial losses ahead of the US FOMC rate decision. Once again, it was a case of “buy the rumour, sell the news” for the US Dollar. The USD has been heavily bid on leading up to the rate decision, where the Fed was widely expected to raise rates, before being sold as they did exactly that. As had been widely signalled over recent months, the Fed raised rates by a further 0.25% at its December meeting this week and struck a cautious, yet optimistic tone in the accompanying statement.
In terms of projections and forecasts, the market was disappointed as the dot plot projection for next year were left unchanged at 3 forecast hikes over 2018. Some were expecting to see this increased on the back of solid data recently. Indeed, the Fed’s GDP forecast was revised higher to 2.5% in 2018 though PCE inflation remained unchanged.
In all, the meeting was something of a non-event. The move was widely signalled and the market was not treated to much in the way of new information. Seeing some USD unwinding which allowed gold to recover and will likely keep the yellow metal supported in the near term.
After breaking down below the rising channel from last year’s lows, gold prices found support at the 50% retracement from those lows and reversed higher. Focus is now on a retest of the underside of the rising channel. If price can make it back above there it will bring the key 1294.17 level into play which has been a key pivot for gold this year.
Copper: Upcoming Wage Negotiations Threaten Supply Disruption
The red metal tracked the broader commodities move higher this week responding to the post-FOMC USD sell-off. News of a busy year ahead for Chile wage negotiations has also added support. The country, which is the top copper producer globally, is scheduled to see an extremely busy year of wage negotiations in 2018 with Chilean mines set to negotiate contracts with 32 unions over the course of the year. The talks will cover mines responsible for around 75% of the country’s copper output (roughly 20% of global output) and the negotiations could cause disruptions to around 40% of supply according to Barclays.
Prices had been lower over recent weeks as the market has reduced expectations for Chinese demand. However, following a year of supply disruptions mainly linked to miners strikes, the prospect of a year of wage negotiations poses a further threat to supply.
The recent selloff in copper saw prices trading back down to retest the broken 2015 swing high and the broken bearish trend line from 2011 highs. With this level having held as support, focus is now on further upside with the mid 2014 high and bullish trend channel resistance the next key levels to watch.
Iron ore: Market Jumps Again As Speculative Buying Increases
Tracking the weaker USD, Iron ore prices jumped this week in line with the rest of the metals complex. Iron ore prices have been extremely volatile over recent months as the fundamental picture has undergone a shift. Heading into the implementation of the government’s steel production cuts, iron was weaker as demand fell but soon after, speculators began focusing on the expected uptick in demand when the production cuts cease.
Last week’s sell off in Iron ore saw prices falling back to just shy of the breakout base around the $64 level. The $73 mark remains key resistance for now with a break above that level bringing the August high back into focus.