With concerns mounting about supply levels, commodities fall overall, despite a weakened US dollar.
Gold: Weakens as Risk Appetite Strengthens
Following five consecutive weeks of rallying, Gold prices slipped lower this week despite further USD weakness. Deteriorating impact from the Fed’s hiking cycle has seen the US Dollar losing value over the first few trading weeks of the New Year, allowing gold to gain a stronger footing and recover nearly all of the losses suffered during the decline from last year’s highs. The rally in gold comes despite a strong improvement in global risk sentiment, as equities surge to fresh highs and geo-political tensions cool. Many investors had been using Bitcoin as an alternative to investing in gold but with the price of Bitcoin cratering over recent weeks, many investors have been turning back to the traditional safe haven asset which is a dynamic likely to keep gold supported.
The rally in gold has seen price traveling back up to just under the bearish trend line of the contracting triangle pattern that has framed price action over the last two years. If price breaks back above the bearish trend line, the next key level will be the 2016 high at 1376.20. To the downside, the next key support will be a test of the rising trend line of the contracting triangle pattern along with the key 1297.76 level which was key resistance over much of 2017.
Silver: Prices Weaken but Bullish Forecasts Remain
Silver prices were also softer this week, tracking the moves in Gold. Silver typically performs best during periods of growth due to its industrial uses. The synchronized uptick in global growth has seen demand kicking back in for silver, with HSBC forecasting much higher prices over 2018, highlighting weaker supply and likely stronger demand. Additionally, the bank stated that Fed rate hikes are already priced into the market and should have a limited affect on silver, though any Fed dovishness could prove to be an accelerant for higher prices.
Silver prices are now firmly back inside the contracting triangle pattern which framed price for most of 2017. The rally made it as high as the 17.4575 level which has been key structural resistance over the last six months. Above that level, focus will be on the bearish trend line of the contracting triangle pattern while above there focus will turn to a test of the mid 2017 swing high at 18.2076.
Copper: Red Metal Softer as Inventories Rise
The red metal, which had surged to fresh multi-year highs in the final weeks of 2017, continued its 2018 decline this week due to fresh signs of increasing supply in the market, leading institutional investors to slash their upside exposure. Strong demand in China as well as severe supply disruptions over the last year lit a fire under copper but, the metal has had a tricky start to the New Year due to reports of rising stockpiles, which highlight oversupply. Despite the current pullback, the forecast remains positive and HSBC has recently raised its 2018 forecast linked mainly to USD weakness and recovering factory-output.
The 2014 swing high around 3.272 has continued to provide strong resistance, turning another attempt lower again. While price remains above the 2.916 2015 swing high, focus remains on further upside. The 2.916 level has been solid support over the last few months and a break lower opens the way for a retest of the broken bearish trend line from 2011 highs along with the mid 2017 high around 2.769.
Iron: Record Shipment Weighs on Price
Iron ore prices tracked the broader commodities fall this week and tumbled. Most players are highlighting rising port inventories which has sparked concern about Chinese demand. At latest count, port inventories in China had risen to record highs. Adding further pressure was the news that Rio Tinto, the world’s biggest iron ore producer shipped a record 90million tonnes of copper in Q4 and has capacity to ship a further 10million tonnes this year.
Following a strong rally over recent months, Iron ore prices fell lower this week after approaching the mid 2017 high. The $80 level remains the key resistance for now though price is potentially putting in a large double top which would suggest a rotation lower. The next key support level in Iron will be a retest of the $73 level December swing high.