Commodities outlook: is the gold and copper rally over?

by Rajan Dhall from interactive investor |

After posting sizeable gains, our markets analyst discusses prospects for the red and yellow metals.

Gold has been moving higher in recent sessions, but the rate of acceleration has slowed somewhat as the price gets closer to important yearly high resistance levels. 

In terms of the fundamental picture and the current risk environment, traders and investors are gathering more information about the potential dates each country could open up their economies again. 

Italy, which was one of the worst affected has already started to open up some shops and schools. The US President Donald Trump has also laid down guidelines for some states looking to resume some normal services by the middle of next month.

These include a three-day decline of hospitalisation rates and employers performing temperature checks.

The US Federal Reserve continues to support markets with open-ended bond buying. At the moment this only includes government bonds, but there have been comments from US central bankers that one day they could consider corporate paper too. 

Just yesterday, the Federal Open Market Committee (FOMC) kept rates on hold at 0.00 - 0.25%, with all FOMC members unanimously agreeing.

During the press conference Fed chairman Jerome Powell said the unemployment rate could hit double figures, which is consistent with White House economic advisor Kevin Hasset's claim that the rate could be as high as 16-20% by the end of June. In February it was 3.4- 3.5%. 

Looking closer at the gold 4-hour chart below, you can see that the price has failed to test the $1,788.8 per ounce high in the futures contract.

This has resulted in a lower high being printed, which means the support zone of note is at $1,661.6 per ounce. If this level breaks on the downside, it would complete a bearish pattern and the price could be heading to lower levels. 

Of course, this would be negated if the bulls stepped back in and push the price to the main wave high on the chart. Also, trading volume seems to have tailed off in recent sessions, and there appears to be a lack of conviction from buyers at these elevated levels. The market may be waiting for the next catalyst to break the highs. 

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

COMEX Copper has been pushing higher in recent sessions and is now only 15.6% lower on the year. The price has been buoyed by the bounce back in Chinese numbers and, overnight, the market received the latest manufacturing Purchasing Managers' Index (PMI) release. 

The standard reading came in just above the expansionary 50 figure (50.8), but under the read of 51 expected by analysts. The Caixin number, which is usually slightly better respected, fell just under 50 to print at 49.4. These are still staggering considering the country has only recently moved to open its economy. Only time will tell us how reliable these figures are, but the base metal traders and investors seem bullish. 

Although the copper price is rising, keep an eye on the volume in the table below. This divergence is a warning sign that the market could be looking to topple over. 

A price of $2.50 per pound seems a logical target for the bulls and the price is not too far off. There is also some resistance at the $2.49 per pound area marked by the red resistance line on the chart. Longer-term, this will all depend on how quickly the economies can reopen and if there is a strong second wave of infections. 

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.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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