Commodity chart picks
Head of Commodity Strategy
Summary: What the charts currently tell us about the direction of copper, gold-platinum and crude oil.
HG copper jumped yesterday on the Trump administration’s decision to resume talks with China while delaying some tariffs from September 1 to December 15. Although we are seeing the rally fade somewhat today the white metal’s ability in recent weeks to manage a deterioration technical and fundamental outlook could bode well for the short-term outlook.
The technical picture has improved following the failed attempt to break below the $2.57/lb neckline on the weekly chart. The fundamental outlook has been weighed down by concerns that the trade war would accelerate the slowdown in global growth, thereby erode demand, not least from the world’s two biggest consumers.
Macro driven funds looking for a hedge against recession have accumulated a record short in HG copper futures. During a two-week period to August 6 money manager more than doubled their net-short to 74.6k lots, a position which is now somewhat under water. Continued short covering will find resistance at $2.67/lb. and most importantly $2.70/lb.
Gold’s phenomenal rally to a six-year high was tested yesterday following the US tariff announcement. The violent $55/oz retracement from $1535/oz was more an indication of how crowded the trade has become than a change in the fundamental outlook. We maintain a bullish view on gold driven by the race to bottom in global yields and central banks turning into easing mode. But in the short-term it might be worth take a closer look at platinum which has been struggling amid the downturn in global car sales and production.
The discount to gold reached a record $668 yesterday before recovering to the current $650. While the speculative gold net-long reached a near record high in the week to August 6 the equivalent long in platinum is bang on the five-year average so not stretched at all. Traders worried about a technical correction in gold may find some value in switching to platinum instead.
Crude oil has spent the past month trading within a near 15% range with continued downgrades to global demand growth only somewhat being off-set by tightening supply from Opec+. One key development has been the contraction in WTI’s discount to Brent crude oil from $11/b back in June to the current $4.5/b. The spread has narrowed in response to the global slowdown impacting Brent, the global benchmark, and increased concerns that US shale oil producers will struggle to meet their production growth targets. This as many producers continue to burn cash while relying on funding to stay operational.
While Brent crude has recovered back above $60/b the technical outlook for WTI looks somewhat better after once again managing to find support above $50/b. The range-bound behavior however looks set to continue with focus on US-China trade talks and continued production restraint from Opec led by Saudi Arabia.
The WTI chart below points towards resistance at $68.80/b, the recent high and trend-line from the April high.
Later today at 14:30 GMT the US Energy Information Administration will release its ‘Weekly Petroleum Status Report’. Some fireworks can be expected given the discrepancy between market expectations for a 2.5 million barrel drop and the 3.7 million barrel increase reported by the American Petroleum Institute last night. The table of expectations can be found here.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.