Breakout week sees copper, gold nearing new resistance

Breakout week sees copper, gold nearing new resistance

Commodities 6 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Gold has run into some mild profit-taking in the wake of Wednesday's FOMC minutes while copper prices are presently shrugging off trade war headlines and poor macro data in favour of a more bullish, supply-interruption focus.


On Monday, our Morning Call highlighted two breakout candidates in metals. Since then, both gold and copper have rallied higher to reach their next levels of resistance. What were the catalysts behind the latest moves higher?

Gold

After almost reaching $1,350/oz, gold has since run into some mild profit taking following yesterday’s Federal Open Market Committee minutes. While the FOMC members see 2019 marking the end of their balance sheet run-off, they did not signal an end to rate rises. The market, however, did not buy into this signal with CME’s FedWatch tool showing an 85.3% chance of no change this year.  

The image below highlights the key drivers for gold and their recent impact. While the December rally was driven by support from movements across most other asset classes, the rally so far this year has continued despite headwinds from the risk rallies in developed and emerging market stocks as well as high yield corporates.

The dollar has provided limited direction with the exception of the stronger yuan. Our next commodity webinar discussing current developments and the outlook for metals, energy and agriculture will be held on February 27. You can sign up here.
Gold and copper
We maintain a bullish outlook for gold given the prospect of a weaker dollar, stock markets having run ahead of themselves to the upside and bond yields telling us all is not well across some of the major economies.

A short-term correction could see the metal revisit and test support at $1,325/oz. The upside focus, meanwhile, remains the major band of resistance between $1,365 and $1,380/oz where gold has peaked out on several occasions since 2016.
XAUUSD
Source: Saxo Bank
HG Copper

For many months now, supply worries have helped offset the headline risks associated with US-China trade war and weaker economic data. On Tuesday, Glencore joined other miners in flagging supply concerns from India, Peru and Africa. Adding to this, we have support from China where a stable to stronger yuan and looser credit conditions have boosted sentiment.

HG Copper has reached its first level of resistance at $2.93/lb ($6400/t on LME). Support now lies at $2.85 with the next target being $3.02/lb. The focus on supply has also helped copper buyers draw some inspiration from palladium, which despite slowing car sales has surged higher due to the prospect of demand outstripping supply over the coming year. 
Copper
Source: Saxo Bank
The latest (but still delayed) Commitments of Traders report from the US CFTC covering the week to January 29 showed a managed money short of 40,300 lots, not far from the June 2016 record of 47,100 lots. A 6% rally since then is likely to have attracted a significant amount of short-covering. Whether a long position has been established ahead of the price breakout this week, however, remains to be seen. The CFTC will not be up to date before March 8 when data covering the week to March 5 will be published. 
Copper

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992