Weekly Commodities Wrap
Precious Metals Down Despite Global Trade Concerns As US Rates Story Takes Centre Stage
The yellow metal was down heavily this week as the US Dollar continues to extend its recent bull run, as the market continues to trade off US rate hike expectations. Following the Fed’s second rate hike this year and the upward revision to its rates forecast, which now projects two further hikes this year from one previously, the market has been rebuilding USD long positions.
For now, it seems that aggressive US rate hike expectations are out-trumping safe-haven flows in terms of being the main driver of gold which is on course to print its third consecutive bearish negative week.
Gold prices have been rapidly making their way lower over recent weeks and price is no coming into a very interesting area of technical support with the completion of a corrective symmetry swing at 1244.13 and the December 2017 low of 1235.95 sitting just below. The next key level beyond here will be the mid 2017 low around 1205.29.
Despite ongoing uncertainty linked to concerns for a global trade war, the safe-haven metals have not seen any safe-haven bid in recent weeks. Instead, even as equities fall, silver and gold have both been under pressure, tracking raw commodities lower as the market focuses on the US rates story. While this of course is subject to change, and the risk of any sharp deterioration in risk sentiment could provide a boost, for now it seems the safe-haven metals are on course for lower prices.
After falling out of contracting triangle pattern running from Q3 2017, silver prices are now fast approaching key structural support at the 15.65 – 15.80 region which has been a major level over the last few years.
The red metal continues its decline this week as investor concerns regrading ongoing trade tensions between the US and China continue to weigh. In the wake of Trump unveiling $50 billion worth of import tariffs on Chinese products and Beijing’s immediate reciprocation of equal size, copper demand has fallen as investors fear for manufacturing levels in China.
The PBoC recently cut the required reserve ratio a further 0.50% in order to backstop the economy as the country enters into a trade war with the US but for now it seems like this is not enough to settle investors’ nerves.
After rallying back up to once again retest the underside of the broken trend line from last year’s lows, copper prices have since turned lower and are now close to testing the 2.967 level which was the 2015 high and has been a key support zone over the last year. Below there, focus will turn to deeper support at the 2.774 level.
Iron ore prices tracked the moves seen across the broader commodity complex this week, as the combined forces of a stronger US Dollar and poor risk sentiment weighed on the metal. Chinese equities have been falling hard recently as concerns for the US / China trade war have hit sentiment and domestic retail stocks fell another 4% mid-week.
Given that the retail sector accounts for a large portion of steel demand, of which iron is a key production component, iron has been taking the brunt of activity, which is expected to continue while the US and China remain at loggerheads.
After recently failing a third test on the $69 level, iron prices have once again turned lower and are now headed down to key support at the $64 level. A break of this level will be needed to see momentum players enter the market and usher in the next leg lower.