Weekly Metals Wrap

Stronger US Dollar Weighs On Metals But Gold Stays Supported

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Gold

The yellow metal saw further consolidation this week, remaining within the range of the last two weeks as a lack of catalysts kept trading very muted. Despite a stronger US Dollar over the week, gold prices were able to remain supported, recovering initial losses to end the week higher. Ongoing uncertainty around Brexit negotiations, US / China trade talks and fresh concerns over a growth slow down in the US have seen safe haven inflow remaining steady, though favoring the Dollar for now.

TradingGold

Weaker than expected US data keeps Fed rate hike expectations subdued which should keep gold supported in the medium term. Traders now await details on the trade talks taking place in Beijing which should provide the next catalyst for risk flows. If progress is seen to have been made and headlines are positive, risk sentiment should rally, taking gold lower. However, if reports are negative and it looks as though a deal or further talks will not be agreed, we could see risk assets tumbling sharply, pushing gold higher.

forex gold

However, the retracement should find support at the 1298.29 level, or the rising trend line just below, keeping the focus on an eventual run up to retest the 1365.53 2018 highs.

Silver

Silver prices were not so well supported this week, posting their second negative week as softer US equities and a stronger US Dollar weighed on the price. The rally in silver has fizzled out over recent weeks with the market struggling to forge higher ground. An update on US / China trade talks should provide the next directional move in silver.

forex silver

The rally in silver prices has seen the market trading up to test the bearish trend line from 2016 highs which, for now, is holding as resistance. While price stays above the 15.5700 – 15.1800 region (now acting as support) focus remains on the further upside with bulls looking for a clear break of the trend line. A break back below these levels, however, could see price moving back down towards the 2018 lows once more and potential resumption of the longer term bear trend.

Copper

Frustratingly for bulls, copper prices fell back this week, putting an end to the five-week rally that had been in place. The retracement lower came despite the latest data showing record copper imports to China. Chinese copper imports were up 14% in January and 9% year on year. However, it seems that for now, the market is more focused on the outcome of the ongoing US / China trade talks.

Trump has reaffirmed his message that if a result is not delivered by March 1st, he stands ready to increase the current tariffs. Chinese goods worth $200 billion are currently under a 10% tariff which Trump has said can be lifted to 25%. Such a move would place a significant strain on Chinese manufacturers and would be strongly bearish for copper.

forex copper

For now, it seems the recent double bottom in copper is providing the main technical driver, with the price just below the 2.869 neckline of the pattern. A break here should see further bullish momentum develop, signaling a proper breakout. But with plenty of structural resistance overhead, the move could be choppy, and bulls will look to use a retest of 2.869 from above as a base.

Iron

After the strong rallies seen over recent weeks, in the aftermath of the disaster at a Vale mining site in Brazil and news of subsequent supply disruption, iron ore prices fell back this week. The catalyst for the move seems to be some reluctance on behalf of Chinese steel mills to purchase iron ore at current levels. With steel mills looking to reduce costs, it appears that many are looking to reduce their current inventories before buying seaborne iron, especially as Vale has yet to cancel or delay any of its supply contracts officially.

forex iron

Iron ore prices have slipped back under the 2016 high this week, presenting the risk of a double top formation that could see a move lower in coming weeks. Bulls will be looking to use a retest of the mid $70s broken highs as a support base for a further upside run.

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