Weekly Metals Wrap
Resurgent US Dollar Weighs On Metals
The yellow metal posted a mildly bullish week with recent momentum hampered by selling kicking in, as the US Dollar strengthened. Despite the delay in data due to the ongoing US shutdown, readings have been largely positive, and USD was boosted this week as the latest Services and Manufacturing PMIs came in above expectations.
The US Dollar was also boosted by a dovish ECB meeting as the central bank’s president told the market that risks to the eurozone had now tilted to the downside and that the bank stood ready to adjust any and all instruments in a bid to sustain inflation. The market has now pushed back its ECB rate hike expectations, weighing on EUR and pushing USD higher.
The recovery in gold has now seen price making a move equal to that of the last move into the highs of 2018, before we saw the protracted sell-off last year. For now, price is stalled at this level with price action flagging up reversal signs. However, while still above the rising trend line, focus will be on a retest of the key 1366.80 – 1375.87 level which has been the high over the last four years. If price falls from here, the 1235.30 level will be first support.
Silver prices were lower this week also, displaying their correlation with gold, as both a stronger US Dollar and weaker equity prices weighed on price.
Rising geopolitical tensions around the US and Venezuela have weighed on equity prices this week exerting some pressure on silver which, due to its frequent industrial usage, often tracks equity prices.
Although bullish momentum has paused, for now, silver prices are still fighting to stay above the key 15.1800 – 15.5700 level support. The next key area to watch is 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.
Following a strong rally last week on optimism around the ongoing US/China trade talks, the red metal was much lower this week as a combination of a stronger US Dollar and increased production weighed on trading sentiment.
Chilean miner Antofagasta posted record production levels for 2018. The company, listed in London, reported output of 220k tonnes in the final quarter of the year, a 16% increase from the prior quarter. This late surge in production brought the total 2018 production level up to 725,300k tonnes for the year.
The report echoes similar ones from miners Kaz Minerals, which reported a 14% increase in production over 2018 with output rising to 294,700k tonnes from 258,500k tonnes in the prior year, and Anglo American, which reported a 7% rise in Q4 taking final 2018 copper production to 23%, hitting a new five year high.
Copper prices are still sitting on the sloping neckline support of the head and shoulders pattern. The confluence of rising trend lines is offering support while there are two key levels to watch out for with the 2.764 level and 2.852 levels just overhead.
Over a wild, whipsawing week, iron ore prices ended mildly lower as traders report a shift in demand across the grade spectrum in iron ore markets. Reduced profit margins at Chinese steel mills are seeing producers focus more on affordability over other aspects such as productivity and reducing emissions. Consequently, demand for higher-grade, and even medium grade iron ore has weakened as producers prefer to use lower grade ores due to their discounted price.
Iron ore is now sitting just below the late 2018 $76 level high which, given current momentum, looks likely to be broken soon. Above here, the 2018 high will come into focus just ahead of the key $80 psychological level.