Weekly Commodities Wrap

With Increased US Rate Hike Expectations, Commodities Tumble

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Gold: Fed Rate Hike Expectations Crush Gold

The yellow metal tumbled this week as the US Dollar enjoyed a resurgent rally on Fed rate hike expectations. The uptick in global growth alongside stronger inflation has seen investors taking a more bullish shift on the US Dollar, expecting that the Fed will be forced to raise rates at a quicker pace than is currently forecast. The Fed is widely expected to raise rates at its upcoming March meeting and investors are keen to hear the bank’s latest economic assessment as many feel their will be a more hawkish tone to the message.

Despite this widely held view, which is expected to boost the US Dollar and weigh on gold prices, Investment bank Goldman Sachs has raised its price forecast for gold. Its 3, 6 and 12 month forecasts now sit at $1,350, $1,375 and $1,450 respectively. The bank says that the reason for this is based on stronger emerging market growth and the view that; higher inflation breakeven points as a result of stronger oil prices will also help gold.

 

Rate Hike Expectations Commodities Tumble 1

 

After trading up to test the 2017 highs, gold prices have since reversed, putting in a double top at the level, which also held bearish trend line resistance. Prices are now heading lower and will shortly be testing the key 1296.65 area which was key resistance last year and could now provide support.

 

Silver: Stronger US Dollar Weighs

Silver prices were equally subdued this week as the stronger US Dollar has seen a lack of demand for Silver at current levels. Expectations of a more aggressive Fed rate hike cycle have seen investors squaring their positions in Silver and taking profit on recent longs, a dynamic which is expected to continue heading towards the March FOMC.

 

Rate Hike Expectations Commodities Tumble 2

 

After failing at the key 17.4575 level resistance, silver prices have since turned lower and are now approaching the rising trend line of the large contracting triangle pattern which has been in play since early last year. If price breaks the low of the triangle focus will then shift to a test of the 15.60s – 15.80s area support which has been a key level over the last couple of years.

 

Copper: Cautious Outlook on China Slowdown

Echoing the moves seen across the commodity complex this week, Copper prices plunged to an 8 week low, disappointing bulls who had been encouraged by the red metals recent rally back towards year-to-date highs.  Copper had been on a strong footing this year due to strong global growth and better global manufacturing data. However, the outlook has become clouded recently with many players growing cautious over the potential for a slow down in China which is forecast to happen over this year. China is the world’s largest consumer of copper and so any decline in economic activity there will have a big impact on the supply and demand environment t for the red metal.

However, Citibank take a more supportive view, judging that the fundamental environment for the metals complex remains solid with synchronised global growth which they expect to continue.

 

Rate Hike Expectations Commodities Tumble 3

 

After testing the mid 2014 high and failing, copper prices have since turned lower and are now approaching rising trend line support running from the mid 2017 lows. Below there the next key level will be the 2015 high around 2.962.

 

Iron: Chinese Restocking Fuels Rally

Contrary to the general commodity complex moves this week, Iron ore prices actually enjoyed a rebound from recent losses, making their way back up to near 2018 highs.  The gains are attributed to increased demand from physical traders in China, restocking ahead of the Spring Festival.

 

Rate Hike Expectations Commodities Tumble 4

 

Iron ore prices found support at a retest of the late 2017 high around the $73 mark and have since turned higher again. The next key resistance will be the current 2018 high around the $79 mark and the $80 mark ( mid 2017 ) above that.

 

 

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