Weekly Commodities Wrap

US Dollar Rallies on Powell's Hawkish First Testimony Sending Metals Lower

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Gold: Hawkish Powell Testimony Sends Gold Lower

Gold prices continued lower this week, extending losses from the prior week as the market reacted to the first testimony from new Fed Chair Powell. Powell caused a wave of USD buying as he stated that the economic outlook in the US had improved since the December FOMC and said that the fiscal stimulus enacted recently hadn’t been accounted for in either the December SEP forecasts or the January discussions as the tax reform bill hadn’t been passed in December and the budget agreement plan had only been passed following the January meeting.

Furthermore, Powell indicated that the Fed is prepared for four rate increases over the year ahead which has traders ready for an upward revision to the dot plot forecasts in March along with a rate increase at this meeting. If the dot plot is indeed revised higher, gold is likely to continue to remain pressured in line with Powell’s comments.


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Gold prices continue to remain trapped in the larger contracting triangle pattern which has framed price over the last two and half years. Despite recently testing the top of the triangle twice, price has now turned lower again and focus will be on a test of the rising triangle support to see if this can hold. A break of these trend lines (short term and longer term) will bring deeper structural support into play.


Silver: Strong US Dollar Weighs

Silver prices were equally soft this week as the stronger US Dollar weighed on silver markets. While the rebound in equity markets has helped buffer the sell-off in silver, a resurgent US Dollar is likely to pull silver prices down heading into Q2.


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Silver prices are now sitting right on the rising trend line support of the contracting triangle pattern running from last year. If prices break this trend line support focus will be on a test of the next key structural support at the 15.65 – 15.80 level which has been a key longer term level in silver.


Copper: Weak China Data Sends Price Lower

Copper prices tracked lower over the week suffering the dual hit of a stronger US Dollar and weaker China data. On the China front, data weakness came as the latest manufacturing PMIs came in weaker over February at 50.3 vs expectations of 51.2 and down from 51.3 in January. As China is the largest user of Copper, any weakness in manufacturing data always spells bad news for the red metal. However, it is worth noting that the timing of Chinese New Year in mid-February likely played a part in reducing activity so traders will be keen to receive the next update in March to see if this reading was in fact just a blip.


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Copper prices are still caught in a choppy range between the 2018 high around 3.282 and the retest of the 2015 high around 2.965. Until either of these levels is meaningfully breached, this trading is likely to continue. Price has also been respecting the rising trend line from early in 2017. If broken, focus will shift to further correction lower with deeper support in place at the 2.763 coming into focus.


Iron: Further Steel Production Limits Weigh on Price

Iron ore prices mapped the general move in commodity markets this week which saw the metal, which is Australia’s biggest export, falling lower over the week. The iron market also came under pressure this week due to concerns that extensions to the steel production limits in place will put further downward pressure on demand. Latest reports show that the Chinese city of Tangshan will extend restrictions on the current steel production curbs to November this year. This announcement put a lot of upward pressure on steel prices but simultaneously has weighed on iron prices as traders understand the metal, used in steel production, will be in less demand. This view has been exacerbated by the weak China PMI which showed soft manufacturing levels in February.


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Following a strong rally over the last few weeks which took price back up to retest the 2018  high around $79, iron ore prices have since turned lower suggesting a potential double top which indicates the likelihood of lower prices. A break of local support at the $73 level will be needed to confirm the pattern.




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