The yellow metal had another bumper session this week, trading up to levels not seen since mid-2018, as the US Dollar weakened further. Despite the Fed having raised rates for a fourth time in 2018 at its last meeting in December, gold prices have since enjoyed a strong rally on expectations that the Fed will now pause its hiking program.
Weaker US data for December has added further bearish pressure to USD. In the first readings for December, both consumer confidence and IHS market manufacturing printed below expectations falling to 36-month and 15-month lows respectively. The data highlights the diminished outlook for US economic activity over 2019 which has lead to a resurgent appetite among gold traders and investors looking to use gold for its safe-haven status. At the Fed’s December meeting it lowered its dot plot forecast for 2019 from 3 hikes to 2 hikes.
Gold prices are now firmly back above the broken bullish trend line from 2015 lows and are fast approaching structural resistance at the 1295.29 – 1304.36 region where we have confluence between prior highs and lows. Above here, focus will be on a retest of the key 1366.80 – 1375.87 level which has been the high over the last four years.
Silver prices this week displayed a strong correlation with gold, rocketing higher as the yellow metal took off. While equity price declines can sometimes have a dampening impact on silver due to its uses in an industrial capacity, this week, the lower US Dollar helped light a fire under silver, taking it back up to mid-2018 levels.
After stagnating for months near the main support of 1396, silver prices have since exploded higher and broken back above the key 15.1800 – 15.5700 level resistance, confirming a bullish shift in momentum. Prices are now fast approaching the 16.2267 region where we have confluence between a raft of prior swing lows and the long-term bearish trend line from 2016 highs.
Despite the weaker US Dollar, copper prices came under significant pressure this week, trading down to their lowest levels since H1 2017 as a combination of factors turned sentiment bearish.
Firstly, weak economic data out of the US and China fuelled fresh fears about the negative impact of the ongoing trade war between the world’s two largest economies. The Caixin Manufacturing PMI in China fell into contractionary territory in December exacerbating fears of a slowdown in China. Secondly, Apple downgraded its revenue outlook for the first time in 20 years due to reduced Chinese demand, further compounding fears about the outlook for the world’s largest consumer of copper.
The sell-off in copper this week has seen price breaking down below the 2018 low of 2.582 and also through the sloping neckline of the large head and shoulder pattern which has formed over the past two years, signaling further downside to come. The next two support levels to watch are the 2.467 level and 2.292 level.
Despite the heavy sell-off in copper and the broader negative sentiment linked to fears over a slowdown in China, iron ore prices have bucked the trend and traded higher this week. The main driver behind the moves is the short-term factors which are supporting iron such as the strong demand for coal linked to the peak winter fuel season as well as stimulus hopes which are keeping speculative traders poised for further upside. With Chinese data highlighting weakness, traders are banking on a fresh fiscal boost by the government which should translate into demand through increased infrastructure spending.
Iron ore prices are now just 3% down on the year after being as low as – 25% a few months ago. There is some interim resistance in the 71 – 72 region from prior swing highs and lows but the next main resistance to watch is the 76 level where price peaked on its last main rally.