Commodities outlook: Gold, copper, central banks and the virus

Metal markets are not immune from coronavirus effects, but there’s much more going on here.

Commodities markets have been dominated by the risks posed by the coronavirus. What is interesting at the moment is that the markets have started pricing risk away from rapid expansion and global pandemic. This is due to reports of a cure being put into production, although there has been no official confirmation. 

Stocks have also started to move higher as a result, the S&P 500, Nasdaq and Dow are still making record highs, even though all the risks have not fully subsided. 

Looking closer at the asset classes, and gold has been an interesting one to follow. Even putting the coronavirus trade to one side, the underlying stories remain intact. 

The Chinese central bank (PBoC) is still increasing storage levels for the precious metal and this looks set to continue for some time, while other central banks are loosening monetary policy. Both of provide the yellow metal with constant underlying strength. 

Coronavirus provided a good excuse to push the gold back to previous highs. The market stopped just short of the previous wave high of $1,630.3 per ounce, but it was a good run nevertheless. 

The chart below shows the prominent pattern which could be described as a wedge. The top trendline connecting the recent high waves is key. If this breaks it could indicate that the bulls are not done yet, and $1,613.3 per ounce might be under threat once again. 

On the downside, the support level at the $1,536 per ounce area is also a key level to watch. If it breaks, the market would have made a new lower-high/lower-low pattern.

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

The daily copper chart below is a thing of beauty. China is the world’s largest consumer of the red metal and Dr Copper has been hit hard. 

The market clearly overdid it on the sell-side, and now there has been a small retracement. If the situation is really resolved, we could see another move back into the value area. This is represented by the peak of the bell curve on the right-hand side of the chart at around $2.65 per pound. 

There are some pretty obvious resistance levels in the way, with $2.60 per pound being used in the past many time both as support and resistance. As always keep an eye on news flow as, if the coronavirus situation gets any worse, we could see another attack on the lows, though the signs are not pointing in that direction for now.

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.