Gold prices were higher this week, taking their cues from a weaker US Dollar which softened in response to weaker than expected economic data along with the prospect of negotiation between the US and China over the ongoing trade dispute. The latest US inflation data for August came in below expectations at 2.7% vs 2.9% on the headline reading with core also down putting the Fed’s remaining two rate hikes for this year into question.
Amidst the ongoing trade dispute between the US and China, the market was given a sign of hope this week as Washington officially invited Beijing to recommence trade negotiations. Chinese officials welcomed the invitations and the two sides are now reported to be discussing the details with a view to restarting talks. USD has been in strong demand over the course of the trade dispute as investors feel that the US will come off better. Consequently, USD has been sold this week in response to the news.
After breaking down through the July 2017 low at 1205.29, gold is now fighting to get back above the level. If it can sustain a breach above the level, the first focus will be on a test of the 1235.95 level resistance. If the price falls back from here, the focus will turn to a test of 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.
After plumbing yet further lows this week, Silver prices managed to rebound and trade higher to end the week in the green. As with gold, the key driver for the rally in silver this week was the sharp decline in the US Dollar. Silver prices have born the brunt of the Dollar rally over the last quarter, falling around 20% from their highs early in the year, however many players continue to highlight an encouraging fundamental backdrop for silver mainly linked to expectations of strong demand linked to the auto sector which is forecast to translate into higher prices in the medium term.
The cascade in silver prices over the last few months has been relentless with silver posting just two positive weeks in the last fourteen. Price has now fallen right back down to test the 2017 low of 14.1103 having briefly pierced below the level midweek to trade levels not seen since 2016. While some technical support is likely here, the focus remains on further downside in the near future unless price can start to gain some traction to the upside.
The red metal was also higher this week, putting in only its third positive week in the last fourteen. Copper has been hard hit by the US / China trade war over the last few months as speculators have piled on the pressure, expecting a sharp downturn in demand linked to reduced Chinese manufacturing. The news of negotiations starting again is therefore very good news for copper and has seen some early short covering this week. Copper traders will be paying close attention to the headlines over the next few weeks for further news on the restarting of these talks which pose the potential for higher prices.
Copper 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 2.767 level, the price will need to break back above this level to alleviate near-term bearish bias.
Over a turbulent week, iron ore prices remained roughly unchanged after recovering from a midweek drop in response to tanking Chinese steel markets. Steel prices fell on news that Chinese regulators will now allow local officials to set production limits on heavy industry over the winter period, leading to concern that the limits will not be as large. Production cuts have been the key driver for the rally in iron over recent weeks and the news has come as a blow for bulls though for now, it seems that downside is being curbed by USD weakness. Iron sits just below 7% down on the year.
After falling back over the last few weeks iron ore is now turning north once again and is making a fresh attempt to break above the now fabled $68 – $69 region and return to highs. If price can breach the $70 we should see momentum players join the fray to take prices higher still with $72 the next key resistance.