Head of Commodity Strategy, Saxo Bank Group
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.
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.
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.
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.
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