Weekly Metals Wrap

Metals Recover on USD Weakness But Iron Crashes As Chinese Steel Prices Reverse

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Gold

After recovering from initial weakness seen earlier in the session, gold prices recovered to end the week broadly unchanged. The recovery was linked to weakness in the US Dollar which saw selling in response to dovish comments by Fed chairman Powell.

Speaking to the Economic Club of New York, Powell told investors that the Fed now judges its headline policy rate to be “just below” the neutral level, implying that the pace of rate hikes will slow from here as the Fed is close to achieving its goal.

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The comments took the market by surprise following remarks from Powell just a month earlier which said that the policy rate was still a long way from neutral. USD moved lower in response to the comments while equity markets surged higher. Pricing for a December rate hike, while still around 80%, moved lower following the comments also.

Gold prices remain penned in below the 1235.30 resistance level which has now capped price action for three consecutive weeks. For now, there is still the chance of a break higher which would bring the broken bullish trend line from 2015 lows back into focus. To the downside, the 2018 lows at 1158.84 are the first key level to watch with the late 2016 lows of 1122.81 the next level to focus on.

Silver

Silver prices this were slightly lower this week, despite USD weakness and higher equity prices, following news of a major new silver discovery by a UK mining company in Ethiopia. Altus Strategies made the discovery in the Tigray Regional State of northern Ethiopia and are calling the site its “Simret silver prospect.”

Silver prices pierced below the 13.6704 – 13.9612 level support this week to print fresh 2018 lows before recovering back above the level and forming a potential double bottom. However, unless the price makes it back above the 15.1825 – 15.5734 level, the focus will be on the further downside.

Copper

The red metal was modestly lower this week, managing to recover initial losses as the USD retreated following dovish comments from Fed chairman Powell. The outlook for copper is heavy, though, and investor sentiment is weak due to the increase in US tariffs to be applied to Chinese goods starting in January. The existing 10% tariffs on around $200 billion of Chinese goods will increase to 25% under current plans and are expected to hit Chinese manufacturing.

Trade war concerns have been a major headwind for copper prices this year, and the prospect of further tariffs has investors concerned. However, with President Trump and Chinese premier Xi Jinping due to meet this weekend at the G20 summit, traders are quietly hopeful of a deal which could see these tariffs postponed or removed. However, the meeting presents two ways risk as Trump has warned that if the talks are unsuccessful, he could apply tariffs to the remaining $267 billion worth of goods entering the US from China each year.

For now, copper prices continue to battle it out around the 2.767 level which has seen volatile but evenly matched order flow. To the downside, we have support at the 2.567 level (2018 low) with the rising trend line from 2016 lows coming in around the same level also and a deeper 2.443 structural level below that. To the topside, the 2.959 level is the main resistance to watch (broken 2015, the range of swing lows over late 2017 / early 2018).

Iron

Iron ore prices crashed catastrophically lower this week, collapsing by around $10 before stabilizing. The crash has been linked to weakness in Chinese steel prices which fell this week. Commenting on the sell-off, Goldman Sachs said:

We think the broad-based sell-off in steelmaking raw materials is mainly driven by weakening steel margins, which in turn is due to looser-than-expected winter steel production curtailment and higher-than-expected steel supply in a macro environment with elevated uncertainties and weak sentiment.

Disappointingly for Iron ore bulls, prices are now right back down at the low end of the $64 – $69 range that held iron ore captive over 2Q and 3Q. After trading all the way up to just shy of the 2018 highs, prices are now back down around their lowest point of the year. From here, the $69 level is once again viewed as resistance while the $64 level remains the key support zone.

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