The yellow metal collapsed lower this week due to the much stronger US Dollar which rose to an 11-month high this week. Despite broader concerns for the US economic outlook in the wake of continued trade tensions with China, investors instead chose to focus on the Hawkish shift in the Fed. The Fed meeting saw rates raised for the second time last week, along with upgrading the dot plot forecast for the rest of the year, now forecasting two hikes, up from one previously.
The US Dollar received further support this week from Fed chairman Jerome Powell who commented that the US labour market didn’t appear to be “overly tight” and that the Fed should continue with its gradual pace of hikes in order to balance the bank’s employment and inflation goals. However, in a meeting of central bank heads this week, policymakers concluded that the growing trade war between the US and China is dampening business confidence and could force central banks to revise their outlooks lower.
The break lower in gold has opened up a clear run down to test the December 2017 low around 1236.97 while below there the next big support will be the July 2017 low around 1205.29. To the topside, 1296.65 has now become resistance.
Silver prices were similarly weaker this week, tracking the moves lower in gold. The strong rally seen last week, which then reversed now looks to have been something of a false break likely catching overly-eager bulls offside with the reversal in direction. Silver has been hampered this year by a strengthening correlation with base metals which have been weaker.
Silver prices are now sitting on the rising trend line of the short term contracting triangle pattern that has formed over the last 9 months. A break of line will bring the bigger 15.60 – 15.80 level support into play.
The red metal has come under heavy selling pressure this week as both growing inventory levels and concerns around US / China trade tensions have combined to weigh on price. Data on the London Metal Exchange showed that on-warrant copper stocks stored in LME ware-houses, not earmarked for delivery, had risen by 15,800 tonnes to 264,575 tonnes, marking a 38% increase since May 29th.
The rise in inventories is likely linked to the growing concern around US / China trade tensions after both countries have detailed billions of dollar’s worth of tariffs to be implemented on each other’s exports. Given copper’s nature as a barometer for risk sentiment, the move lower signals that investors are worried about the potential economic damage to be caused by such moves.
After breaking out to fresh 2018 highs just two weeks ago, copper prices have since turned sharply lower and are now fast approaching key support at the 2.965 level which has been a base for copper over the last 12 months. A break of this level will open the way for a run down to deeper support at the 2.773 level.
Iron ore prices tracked the moves seen across the broader commodity complex this week, moving lower in the wake of a stronger US Dollar. Despite the bearish moves this week, Chinese steel prices saw a modest recovery mid-week due to speculation that the PBoC are on the verge of once again cutting the reserve ratio requirement for lenders which would funnel more cash into the financial system.
After making a third attempt above the $68 mark, iron ore prices have once again fallen lower, posting a short term triple top pattern at the level which signals the market might be in store for a deeper move lower which would be confirmed by a break of the $64 level support.