Gold Trades Lower Despite Global Growth Concerns
Weekly Metals Wrap
The Yellow metal was down again over trading this week as a resurgent US Dollar weighed on price. Gold is now posting its second bearish week as a spate of recent data strength in the US has fuelled an uptick in demand. The sell-off in gold comes despite a mover lower across risk assets as the OECD once again downgraded its global growth forecast for 2019.
Citing ongoing trade wars, policy uncertainty, and Brexit, the OECD cut its growth forecast to 3.3%, down from 3.5% prior. Concerns about global and domestic growth saw the ECB announcing new measures this week to prop up the eurozone economy. The central bank announced a new set of loans for banks and warned that if the downturn continues to deepen over the coming months, they may delay hiking rates.
The sell-off in gold has seen price trading back down below the rising trend line from 2015 highs. If price remains below here, the next level to watch will be a test of the 1243.24 level. Bulls will need to hold this level to keep any further upside in focus in the near term.
Silver prices were sharply lower this week. This was also a combination of the downturn in gold, a stronger US Dollar and falling equity weighing on the metal. Silver prices came close to breaking into bullish territory in line with consistently bullish forecasts from investment banks. Despite this, prices now look to be moving back into the range which persisted over much of last year.
After trading up to test both the bearish trend line and the 16.2267 structural resistance a second time, silver prices have turned sharply lower. This time they have broken below the 15.5700 – 15.1800 support. Unless bulls can defend a retest of the 14.8861 level, we could soon be looking at last year’s lows once again.
The red metal was slightly softer again this week, as recent upside momentum has moderated for now. A resurgent US Dollar, as well as rising concerns over global growth, have taken some steam out of copper.
There are also concerns over rising tensions between China and Canada as the latter pushes ahead with plans to extradite Chinese Huawei CFO Meng to the US. China responded this week by blocking Canadian Canola exports. There are now fears that if retaliations intensify, it could harm the ongoing US/China trade negotiations.
Price is now challenging key structural resistance at the 2.958 level (2015 high, late 2018 swing lows) which is holding as resistance for now. If we retrace from here, bulls will be looking to use a retest of the 2.866 level as support for a further topside run. This would keep focus on an eventual test of the highs around 3.280. Below 2.866, support is along the rising trend line from 2916 lows.
Reflecting the growing concern around global growth as well as the tensions between China and Canada, iron ore prices were relatively subdued this week seeing little change. Despite news of yet further production curbs announced in China, prices were little moved.
The announcement of such production cuts in the past has typically caused large spikes higher in the price of steel and subsequently iron. However, this time around, such a reaction was not seen, indicating concerns over the broader picture.
Prices remain subdued below the 2016 swing high. This points to the risk of a double top here and a deeper move lower. Bulls will need to see price back above $90 to assuage bearish fears. If we do move lower from here, a retest of the breakout base around mid $70s should provide initial support.