Commodities outlook: China, copper and the future for gold

Our financial markets analyst explains how major metals have performed and what might happen next.

It's been a mixed week for commodities. After a great start, the industry majors took a hit on Thursday as concerns over the trade deal came back to the forefront of traders' minds. 

It was said that some Chinese officials doubted that a long-term trade deal was possible, even as we get ever closer to the "phase one" signing at the APAC meeting in Chile. 

China is thought to be unwilling to budge on some key issues in the deal, including intellectual property theft and tariffs. The Chinese also said they are concerned about Donald Trump's impulsive nature and the risk he may back out of a deal at the last minute.

Chinese data has also been mixed this week. We have had both the Caixin and official manufacturing PMI's. The official number missed expectations and sent oil and copper lower, but the Caixin reading overnight came in above expectations of 51 to print at 51.7, remaining in expansionary territory. 

Copper has also had some fundamental issues of its own. This week the strikes at Chilean mines continued with the world's largest mine - Escondida - operating at a reduced rate following a walkout from the miners in solidarity with the anti-government protests across Chile. This helped the copper bulls but just not enough to take out the resistance zone identified on the chart below.

On the technical side, the daily chart below showed the COMEX copper price just failed to test resistance at $2.70 per pound this week. The highest it managed was one dollar away at $2.69. 

Now that a lower high has been created, the price could push lower again, and support levels could be in focus. It seems we are stuck in a sideways market until we get more information from China and the US about their meeting this month. 

Interestingly, the price is now back at the mean value area marked on the chart. This is the price where most contracts have been traded on the COMEX exchange.

Source: TradingView Past performance is not a guide to future performance

Gold has pushed higher over the last few sessions after the aforementioned China-related headlines pushed equities lower. The US dollar has also been in a corrective phase with EUR/USD pushing higher in recent times. 

Gold has capitalised on this but not to any major extent. As you can see on the chart below, the wave high resistance ($1,565 per ounce) was not tested when this could have been a decent time to have a run at the level. 

Now the price is back above $1,500 per ounce, we could expect the highs to be tested again, but this may happen over the long term. Elsewhere, the Federal Reserve cut interest rates by 25 basis points as the S&P hit all-time highs!

The data in the US has not been too bad either as GDP also beat expectations. Gold will now only position to move higher if investors are really worried about this trade deal or if there is a sudden shock to the markets. 

On the chart, the price has broken out of a short-term trendline, which could indicate a move higher, but the momentum in gold has been strange. Looking at the volume levels at the bottom of the chart, you can see the trend is lower. If there is a significant break higher it would be better if it was backed by good volume for confirmation.

Source: TradingView Past performance is not a guide to future performance

Rajan Dhall is a freelance contributor and not a direct employee of interactive investor.