Precious metals: While silver struggled due to the general weakness across industrial metals, gold managed to build on the strong technical signal from the previous week, when a rising yield-driven crash was followed by a strong bounce. The relative support for gold, despite the stronger dollar, has been driven by some haven demand which apart from gold also managed to keep bond yields down, even with the increased taper risk signaled in the minutes from the latest FOMC meeting.
The market may also conclude that the virus-related turnaround in consumer sentiment since that meeting may cause the FOMC to think twice before hitting the taper button. An example of this was seen in New Zealand this week where a Covid-19 outbreak led to renewed lockdowns and the cancellation of an expected rate hike by the RBNZ.
The short-term outlook remains challenged by the risk of yields and the dollar both moving higher ahead of the August 27 meeting of central bankers at Jackson Hole, the annual symposium which in the past has been used to send signals of changing policies or priorities to the market. Speculators have responded to these potential headwinds by making deep cuts in their net long positions in CME futures. The net long slumped by 52% to 5.1 million ounces in the week to August 10. The reduction was driven by a 2.6 million ounce drop in the gross long while the naked short jumped by 2.9 million ounces to a 26-month high. In order to squeeze out these recently established short positions, and for gold to shine again, it needs to break decisively above $1830/oz.
Copper slumped to a four-month low with the break below trendline support in the $4.2 area attracting fresh selling from tactical shorts. It traded below $4/lb before managing a small bounce ahead of the weekend. The metal together with iron ore, the most China-centric commodity has been hurt by the recent weakness in Chinese economic data, the spreading of Covid-19 and a firmer dollar. While the short-term technical outlook has deteriorated and the price potentially could drop as far as $3.77/lb, the long-term bullish outlook for copper remains. Not least considering the global green transformation push which over time is expected to create an increasingly tight market. Against the mentioned headwinds, we should not forget a potential threat to supplies from strike actions in Chile, the world’s biggest producer.
High Grade Copper crashed below $4.2 with the next major level of support at $3.77