Commodities outlook: This could send gold climbing

Industry analyst Rajan Dhall discusses where investors should expect oil, gold and copper prices to move this week.

The pressure on commodities eased somewhat last week, Spot WTI crude pulled back up, copper rejected $2.71/lb, though gold cannot seem to recover. 

The yellow metal is getting closer and closer to the cost of production which, according to sources, is about $871 per troy ounce. Companies like Randgold Resources Ltd  and Fresnillo are really feeling the pinch at the moment. 

In terms of geopolitical risk, buying gold looks a sensible option, certainly as part of a portfolio.  Uncertainty of central bank tightening monetary policy and a hedge against inflation, it seems Russia agree with bullion holdings approaching the Soviet peak seen in 1941. 

From a technical standpoint, we have not reached one of the major levels yet; the value area on the chart below represents a place where the price has spent a significant amount of time.  This is an important level because of this in itself and the fact it has been a good support and resistance level too. 

Based on the size of the weekly candles it's clear to see that the momentum in this move is getting thinner but, with the FOMC meeting this week, there is a chance it could weaken further. The FOMC has signalled they are looking at a total of four rate hikes this year and it’s felt this is already priced into gold, so any repeat or bearish rhetoric could send gold climbing.

Past performance is not a guide to future performance

Spot WTI is still trading at relatively lofty levels in relative terms and, although we have seen a pullback, it's been nothing major as yet. As long as we hold around $70/bbl, most of the producers will be content. 

Interestingly, we saw a corporate casualty of the higher prices last week. Ryanair Holdings latest earnings report stated that the cost of fuel had impacted earnings and maybe we could see the cost filter through to inflation. 

Last week, oil prices had been supported as Saudi Arabia suspended shipments of oil through the Bab el-Mandeb Strait after two large tankers were attacked by Yemeni Houthi militia - this news was then offset by the Baker Hughes rig count data which increased to 861 from 858.

Past performance is not a guide to future performance

A couple of weeks ago, copper showed a clear rejection of the previous mean value area at the $2.65/lb zone. This is a clear indication that technical price levels are important in this market and a rejection of lower value is a sign that traders and investors are debating whether prices are too low. 

Since we have seen a consolidation just above that area, if global trade tensions ease we may well see a move back higher again. 

This week, leading car makers are set to meet to discuss Trump's auto trade measures and, if there is a way to counterbalance the actions.  Trump is showing signs of backing down, as he and Junker from the EU came to some agreements last week over free trade.  

Past performance is not a guide to future performance