Weekly Metals Wrap
Gold Prices Rally As US Dollar Weakens On Dovish Fed Chairman Comments
The yellow metal rallied this week, benefiting from weakness in the US Dollar to trade back to its highest levels since Q1 of the year. The weakness in the US Dollar was seen in response to Fed chairman Powell comments at the Economic Club of New York where he told investors that the Fed now judge the policy rate to be “just below” neutral.
These comments took the market by surprise as just a month ago Powell told the market that the policy rate was still a long way off neutral. Powell’s remarks have been interpreted by the market as a sign that the Fed is going to slow the pace of its tightening policy next year.
Currently, the Fed forecasts one further rate hike in 2018 and three over 2019, though the market will be keenly watching the upcoming December meeting for signs that rate hikes are to be postponed after the December hike.
Gold prices this week traded above the 1235.30 resistance level which had previously capped price action for three consecutive weeks. There is a now an increased probability 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 as the next level to focus on.
Silver prices traded in tandem with gold this week, rallying off year-to-date lows as the market took advantage of a weaker US Dollar. Despite the heavy sell-off over the year, many players continue to forecast higher prices for silver in the medium term as demand linked to the electronic automobile market is expected to take hold.
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.
The red metal was sharply lower this week despite a weaker US Dollar and improvements to the outlook for trade relations between the US and China. News of a truce agreed at talks held on the sidelines of the G20 meeting in Argentina last weekend, failed to provide upside impetus for copper this week as the market instead reacted to supply-side news.
Codelco, the Chilean state mining company, reported this week that it has reached an agreement on a new collective labor contract with union workers at its Gabriela Mistral mine in the north of the country.
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).
After posting a small recovery last week, iron ore prices were down sharply again this week as Chinese financial markets were lower in response to news of the arrest of a key Chinese business executive, made by Canadian authorities on behalf of the US government.
A senior member of the tech firm Huawei was arrested this week, apparently at the request of the US government. However, President Trump said that he was unaware of the arrest. The market fears that this latest episode will negatively impact the trade talks between the US and China.
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.