Weekly Commodities Wrap: Strong US Dollar Keeps Metals Pressured

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Gold

The yellow metal cratered to fresh 12 month lows this week as a resurgent US Dollar and cascading oil prices combined to shunt the safe haven metal lower. The US Dollar has been rallying firmly this week in response to Fed chairman Powell’s testimony before the Senate where he gave a very encouraging outlook on the US economy. Alongside raising rates at its last meeting, the Fed also upgraded its dot plot forecast to two further hikes this year from one previous and Powell’s comments this week reaffirm this view.

After stalling at the completion of the large ABCD corrective pattern, gold prices have since broken lower, moving beneath the key 1235.95 level. The focus is now on the test of the next key support level at the 1205.29 level which is the May 2017 low.

Silver

Silver prices were similarly under pressure this week tracking the moves in gold to plumb its own fresh 12-month lows. After a long-stagnant year so far, silver prices have finally been showing momentum over recent weeks after making a false pop to the upside and reversing lower, now on course to post a sixth consecutive losing week.

After breaking down out of the contracting triangle patterns that have framed price action over the last two years, silver prices have now moved below key technical support at the 15.80 – 15.65 level, an important technical development which portends further downside.

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Copper

The red metal continued it sharp decline lower this week posting a sixth consecutive losing week as a stronger US Dollar and concerns around the US / China trade war continued to weigh on demand. Speculators have been piling into copper short positions, at the same time that investors have been unwinding long exposure, anticipating a drop in demand as Chinese manufacturing takes a hit due to the US import tariffs implemented by Trump over recent weeks.

However, Citibank this week wrote in a note this week that they are now forecasting a period of much higher prices in copper. The note read “We look beyond the potential trade war to longer-term copper market fundamentals and we find that current prices of $6,200 a ton are nowhere near high enough to enable the market to clear… “Copper is set to outperform most other commodities under our coverage over the coming decade on a lack of mine supply growth.”

The sell-off in copper has seen price moving below the 2.762 level which was the mid-2017 high. This level had gone untested since price broke out last year and the breach of this level is an important indicator that further losses are likely. Unless price can move back above this level focus turns to the next key downside level where we have the rising bullish trending from 2016 lows and the late 2016 low around 2.453. This is an area which should see some profit taking / technical buying if tested.

Iron ore

Iron ore prices have managed to hold their ground this week despite the losses seen across the broader commodity complex. Support for iron has mainly come from news of a rise in home prices in China over June. The housing sector in China is responsible for a large percentage of iron demand and better prices will be welcomed by bulls, who have been under pressure recently from weaker steel prices.

Iron ore prices are managing to cling onto support at the $63 mark which has underpinned price on three major tests over the last three months, as the consolidation at the level continues to develop. To the topside, the $69 level remains the key resistance zone to watch.

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