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Optimism Over US/China Trade Talks


1 February 2019

Gold


The Yellow metal was higher again this week, benefitting from a weaker US Dollar.  In light of the first FOMC meeting of the year, the Fed stroke a more dovish tone. While the Fed kept rates unchanged, the USD bulls were left disappointed. The Fed no longer refers to the need for gradual tightening in its statement and economic momentum now described as solid instead of strong.

The real blow came from the section on balance sheet normalization. Fed said it would maintain its current balance sheet (or adjust it) as necessary given incoming data. This removed the earlier emphasis on balance sheet normalization. During the press conference, Powell talked about patience and the need to assess incoming data and monitor developing global risks. Subsequently, we have seen USD trading lower and equities and gold up instead.

The resurgence in gold over the last two weeks has seen price trading up into the 1325.96 level resistance. Any retracement should find support at the 1298.29 level, keeping the focus on an eventual run up to retest the 1365.53 2018 highs.

Silver


Silver prices scored higher this week, supported by upward moves in both gold and equities. Investment banks throughout last year had long been calling for a reversal in silver with many citing the prospect of increased demand from the auto sector as likely to support price over 2019. With the rally now starting to gather momentum silver bulls will be gaining conviction in a continuation over the coming months.

The rally in silver prices has seen the market trading up. It attempts to test the bearish trend line from 2016 highs which, for now, is holding as resistance. While price stays above the 15.5700 – 15.1800 region (now acting as support) focus remains on further upside.

Copper


The red metal continued its rally this week, posting a fourth consecutive winning week as the softer US Dollar and optimism around a US / China trade deal continue to underpin price action.  While copper was initially lower on the week due to the latest Chinese data which showed the manufacturing sector contracting for a second consecutive month in January. However, with reports of further, positive trade discussion between Chinese and US officials, optimism around the potential end to the year-long trade war have taken the driver’s seat.  Both sides have hailed the progress made in meetings so far with Trump, as usual, taking to Twitter to declare his satisfaction with current development.

Copper prices are still fighting it out between two opposing technical formations. The large head and shoulders pattern encourages a bearish view. The current double bottom (with a bullish pin bar at the lows) suggests higher prices. A break of the 2.869 resistance could confirm a bullish shift. A break of the rising trend lines would build bearish momentum.

Iron


The effects of a weaker US Dollar and increased optimism around US/ China trade talks reflected the iron ore markets. This week’s action came as a result of growing concerns regarding supply disruption following a disaster at a Brazilian mine. Following a collapsed tailings dam at one of its sites last week, Brazilian miner Vale has announced major changes. It will decommission all upstream tailings dams over the coming three years, wiping around 40 million tonnes of iron supply.

Iron ore traded to the highest levels since early 2018 emphasizing a test of the 2018 highs while above  $76. However, if we see price dip back under late 2018 of $76 high, we could be at the formation of a double top, suggesting the potential for lower prices.

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