Commodities outlook: Keep a very close eye on gold

by Rajan Dhall from interactive investor |

It's seen as a place of safety when investing gets tough, but gold is already up 22% since late May.

Commodities markets are still in a state of limbo as trade tensions and geopolitical issues hang in the balance. Gold is one of the more interesting charts at the moment as, despite the threat of impeachment and myriad other political issues in the US, the price fell yesterday as stocks rose and the stronger strengthened. 

Gold is obviously the safe haven of choice for many investors and, as the Federal Reserve cut interest rates and central banks around the world support global markets, it could be a major force in the future. 

In America, the Democrats have put together a case to impeach the President, citing a call with the Ukrainian leader as one of the main issues. Apparently, Donald Trump pushed the Ukrainian government to investigate Joe Biden and his son as they do business in the region. Trump was said to have threatened to hold up aid if Ukrainian officials didn't comply with his demands. 

On the day this story broke, gold shot up to a high of $1,517.05 per ounce, but yesterday Trump released the transcripts of the call, and also boosted stock prices by saying the China trade deal could come sooner than you think. 

On the technical front, the main level that price has observed is the previously touted $1,565.6 per ounce resistance level. It has now become an inflexion point and a break would mean something very important for risk. 

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

Shares like Centamin (LSE:CEY) and Fresnillo (LSE:FRES) are also in focus as the average selling price of gold increases. Now, the range between $1,478 and $1,565 per ounce is important. If Trump and China agree on deal, we could see a break to the downside become more likely. 

In another scenario, if the Republicans back the Democrats in their bid to impeach Trump, the price of gold could push to the next distribution higher up. For now, we need more information and need to watch the US political situation very carefully.

The red metal goes cold

The situation in copper markets is fully reliant on the trade deal and US dollar strength. At the moment, prices move day to day on the trade headlines and the most recent rhetoric has been one of optimism. 

This week, the price pushed back above $2.60 per pound after the Trump said a trade deal could come sooner than you think. The issue here is the US dollar is strengthening at a persistent rate and a dollar shortage has come to light following the Fed's repo auctions. Perhaps the price would have moved more if the greenback was not so strong. 

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

On the chart above, there has been a classic trendline retest highlighted by the red arrow. Now, the lower end of the range at $2.47 per pound can be viewed as a base level to focus on. 

Global trade is slowing as the German PMI's show, but, overnight, we will get the latest Chinese industrial profit data which might give us a clearer picture of how bad the situation really is. 

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.

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