Weekly Metals Wrap
Iron Ore Surges On Fresh Chinese Infrastructure Spending Expectations
After breaking out above the 1235 resistance level last week which has capped price over the past six months, gold prices retreated lower this week as the US Dollar pushed back up toward recent highs. US Dollar has come back into favor ahead of the December FOMC meeting next week which is widely expected to see the Fed raise rates for the fourth time this year. USD was also bolstered this week by dovish comments from ECB president Draghi who acknowledged that risks to the Eurozone are starting to tilt to the downside. Gold prices had been gaining recently due to ongoing geopolitical risks from Brexit and trade wars. However, even with US equities plunging to fresh 2018 lows, gold’s safe-haven status was unable to keep it supported.
Despite the sell-off this week, gold prices are still sitting above the key 1235.30 level which is currently holding as support. While above here, focus is on further upside with the retest of the broken bullish trend line from 2015 lows, the next key resistance to watch.
After making moves both higher and lower on the week, Silver prices ended the week broadly unchanged. While the upcoming FOMC meeting is weighing on silver we could see a bounce later next week if the meeting gives any indication that the Fed will slow the pace of hikes. Recent comments from Fed chairman Powell suggest that the Fed is considering slowing the pace of hikes though traders will be watching the meeting for confirmation of this view.
For now, silver prices remain stagnant just above the 13.6704 – 13.9612 level support. Focus remains on further eventual downside unless we see a break back above the 15.1825 – 15.5734 level.
The red metal has been caught this week between conflicting news flow around the health of trade negotiations between the US and China. Earlier in the week, copper investors were buoyed by news that China was committed to agreeing on a deal before Trump’s March 1st deadline and was reportedly even considering postponing starting its “Made in China 2025” campaign to which Trump has been opposed. Trump then said that he would intervene in the arrest of Chinese businessmen Meng Wanzhou if it would help trade negotiations. However, later in the week copper was then hit by a stronger US Dollar as well as reports that China has arrested a second Canadian diplomat in retaliation against Wanzhou’s arrest, putting pressure on trade talks.
As has been the story over the last three months, copper prices continue to battle it out around the key 2.767 region which has been a heavy order flow pivot. The key medium-term markers remain support at the rising trend line from 2016 lows, structural support at the 2.443 level and resistance above at the 2.951 level. However, in the short term, the key structure to note is the ascending triangle pattern which has framed price action over the last six months. The break of this patter will be crucial in determining near term direction for copper.
Bucking the trend in the commodities market, this week, iron ore prices rose as investor sentiment was buoyed by news that the Chinese government is preparing to launch more infrastructure projects next year such as the construction of road and waterways. Such projects would see a big boost in demand for steel and consequently iron ore which is a major steelmaking component.
After bouncing off the $64 level low, which has been strong support this year, prices have now traded back up to just shy of $68. The focus now will be on a break back above the $69 / $70 level which was the top of the range for Q2 and Q3 and will be needed to confirm bullish momentum. Until then, the range is likely to persist.