Weekly Commodities Wrap
US Dollar Decline Sees Metals Rise As Market Hopes For Trade War Negotiations
The yellow metal was able to post a minor recovery this week in response to a weaker US Dollar, which posted its second consecutive weekly loss. The fall in the US Dollar comes on the back of President Trump’s comments regarding the Fed where he expressed his disappointment with the bank’s tightening policy which he feels poses a threat to economic momentum in the US.
Speaking with Reuters, Trump claimed that Fed chairman Powell is not doing the sort of job that Trump had hoped he would do and said that Powell should be doing more to help propel the economy forward. Despite comments from Fed chairman Powell assuring investors of the bank’s independence, the market is fearful that the Fed will bend to Trump’s will, which was the same reaction we saw back in July when Trump criticised the Fed.
After breaking down through the July 2017 low at 1205.29, gold is now sitting between that level and support at the 2016 low of 1122.13. For now, bias remains weighted to the downside with only a sustained breach back above the 1235.95 level alleviating immediate negative pressure.
The correlation between gold and silver broke down this week as, despite a recovery in the yellow metal, silver prices sold off once again. Despite the continued selling pressure in silver, which is now at its lowest level since mid-2017, there are still some players calling for higher prices. Following Citibank’s recent call for silver to appreciate in the medium term due to demand in the auto sector, Wells Fargo has now also turned bullish on silver calling it “the best buy” right now in a note published this week, citing their view that the US Dollar rally will reverse this year.
Silver prices are now sitting just above the 2017 low at 14.1103 with little to suggest that we won’t see a test of the level in the coming weeks. To the topside, any retracement higher is likely to find resistance at a retest of the broken 15.6552 level support which has been a major level in silver over recent years.
The red metal was able to stem the heavy declines seen over recent months this week, taking shelter while the US Dollar weakened. The pause came despite a further escalation in the US / China trade war as both countries implemented 25% tariffs on $16 billion worth of each other’s goods. However, the tariffs were long signaled and it seems that the market is instead pinning its hopes on talks between mid-level officials from each country taking place in Washington this week which investors hope will lead to proper negotiations and a scaling back of trade tensions.
Copper price is still sitting just ahead of key support at the 2.442 – 2.505 level which was the mid-2015 low and the 2017 lows with the rising trend line from 2016 lows coming in at the same level. To the topside, the line in the sand is the 2.766 level, the price will need to break back above this level to alleviate near-term bearish bias.
Despite spiking to an intra-week high around $69.5, iron ore prices remained subdued this week. In a research note published by Westpac, analysts claim that environmental policies in China are to blame for the slippage in price this year, with iron still around 10% down on the year despite the recent rally. According to the bank, reforms in the steel industry (as well as softness in imports) has seen weakening activity over the year which they feel will continue into next year.
After surging to just shy of $70, iron ore prices fell back this week and are now fighting it out around $67 – $69 which is broadly the top of the range which was broken during the recent rally. If prices break back below this level properly, the deeper $63 level support will come into focus.