Weekly Metals Wrap
Copper Prices Explode on US / China Trade Deal Optimism
The yellow metal saw volatile trading this week. After initially trading up to its highest level since April 2018, gold prices then catapulted back lower. This came following the release of the FOMC meeting minutes which saw traders taking profit on longs ahead of the weekend.
While the minutes did little except confirm the dovish shift seen at the last FOMC meeting, it seems gold traders were too happy to book profits on the rally thus far. The minutes saw the Fed mulling over the uncertainty in its outlook and the issues posing a threat to the US economy.
With the Fed confirming its decision to remain on hold in the near-term, equity markets were boosted. This pulled capital out of gold and into riskier assets as investors looked to take advantage of better trading conditions elsewhere.
Despite the initial strong rally this week in gold, price reversed sharply to end the week back below the 1325.96 resistance level. Price action is showing a large bearish pin bar, which highlights the threat of a stronger bearish reversal over the coming weeks. Key support comes in at the 1298.25 level where we have structural support as well as the rising trend line from 2016 lows. A break of this level will be needed to confirm a shift in gold.
Silver prices were equally volatile this week, tracking the moves in gold both higher initially and then lower later in the week. With little having changed in the fundamental backdrop, the moves this week appear technically driven. Looking forward, a weaker US Dollar should keep silver prices underpinned, with equities trading higher also.
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. This may signal the potential resumption of the longer term bear trend.
The red metal exploded higher this week, trading up to their highest levels since April 2018. With the Fed looking likely to remain on pause for the time being, traders were able to focus solely on positive fundamental developments for copper.
Optimism around the ongoing US/China trade talks is fuelling fresh demand for copper as traders hope that talks can continue past the March 1st deadline. If this is the case, it means that Chinese manufacturers will not face an increase in tariffs. Furthermore, the likelihood of a deal being made significantly raises the outlook for Chinese manufacturers, which should keep copper prices supported going forward.
The rally in copper this week has seen price breaking above the 2.854 resistance level which is the neckline of the double bottom. Price is now challenging key structural resistance at the 2.958 level (2015 high, late 2018 swing lows). If we retrace from here, bulls will be looking to use a retest of the 2.854 level as support for a further topside run.
Following the recent surge in iron ore prices which saw them trading up to their highest level since 2014, the metal was lower again this week, tracking moves across Chinese steel markets.
The driver behind the broader move is not clear. However, we are likely seeing some hesitance among Chinese steel mills to pay such high prices for iron ore. This is allowing prices to cool off somewhat as mills prefer to work through their inventory before restocking at fresh high prices.
For now, iron ore prices remain below the 2016 swing high, keeping the threat of a double top formation alive. If price can break back above that structural resistance, focus will be on a test of the key psychological $100 level.