Weekly Commodities Wrap

Metals Rocked As US Trade Sanctions Provoke Chinese Retaliation

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Gold: Chinese Trade Retaliation Fuels Safe Haven Demand

The yellow metal saw a strong rally initially on the week as the market saw a strong safe haven bid on the back of news that China was retaliating against trade import tariffs imposed by the US.  President Trump recently announced a move to impose $60 billion worth of tariffs on Chinese imports alongside restrictions on investment.

The move immediately provoked fears of a trade war from China. These fears were confirmed this week as Beijing responded by announcing that it will impose 25% tariffs on key US imports amounting to around $50 billion, including tariffs on products including cars, jewellery, chemical products as well as corn and whisky.

While strengthening in the US economy and expectations of continued Fed tightening are generally providing a headwind to gold, these disruptions in the geo-political climate are seeing solid safe haven demand which is likely to continue if the global trade environment worsens.

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Gold prices remain stagnated in the upper end of a rising wedge pattern forming within the broader bullish channel which has framed price action over the last two years. Price Is still sitting above local structural support at the 1296.65

Silver: Price Remain Stagnant Despite Negative Pressures

Silver prices displayed some disconnection from gold prices this week as silver traded lower over the week. Silver has taken more of a beating from the rout in global equity prices seen in response to the escalation in trade disputes between the US and China. As silver prices don’t experience the same safe haven demand as gold, the market is still focused on the generally positive expectations for the US economy and forthcoming rate hikes, leading to selling.

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Silver prices have spent the ninth consecutive week chopping around the 16.30 level as the market struggles for a directional catalyst. The impact of US trade policies combined with expectations of further US rate hikes have so far failed to push silver down below the key 15.60 -80 level. While above this level there is potential for a rotation higher.

Copper: US Trade Wars Temper Gains

Copper prices were initially heavily sold on the week as the trade dispute between the US and China hit investor risk sentiment and fuelled concerns about the demand environment for the red metal, of which China is the largest consumer. After trading back up towards 2018 highs, copper prices have started declining over recent weeks as upgraded expectations for the US rate path have weighed on the red metal. However, industry reports that the copper deficit grew in 2017 and is expected to continue widening over the coming year, should keep the red metal supported in the long term. However, the trade war between the US and China poses a serious risk to the demand environment.

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Copper prices recently broke down through the rising trend line from early 2017 lows but found support at a retest of the broken 2015 high around 2.967. While price remains above this level, focus will remain on a rotation higher with the 2018 high around 3.276 the key level.

Iron: Rising Port Inventories Weigh on Prices

Iron ore prices moved slightly lower over the week alongside declines in the Chinese steel market. Reports of growing Chinese portside inventories added further pressure, as iron ore levels hit record highs of 161.68 million tonnes last week according to the latest industry data.

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Iron ore prices have now slipped back below the rising trend line from last year’s lows, signalling the likelihood of further declines. The next major structural level in iron ore is the $59 level which was the October 2017 low.

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