The copper selloff develops nicely as base metals sink while precious metals fly
Metals are diverging as we roll towards the end of a quiet week and the month end. Metals that you dig out of the ground, melt and then make into wires, cars, machines, etc have been sagging after a breathtaking run. Metals that you dig out of the ground, melt and then hide under the bed because the world is making you nervous, have found a new lease of life.
As I touched upon yesterday, copper, despite the ongoing supply disruptions has sagged along with iron ore. (Dahlian iron ore futures down -5% at one stage today!) Gold and silver meanwhile, have exploded higher overnight and the gold chart, in particular, looks very interesting.
Treasury Secretary Mnuchin is the latest catalyst to out another knife into what seems to be some serious Trump-flation fatigue on the street. Having already said earlier that a strong dollar is a reflection of America’s economy.
He waded into overnight to say that labelling China a currency manipulator is not a done deal and that a “process” would be followed. After no mention of the border tax, he stuck the knife into the make America great-ists by pushing back the timing of the tax reform package to somewhere near August.
All of this seems to put him in direct conflict with his Boss’s view of the world. All eyes will now turn to President Trump’s address on Tuesday for something wonderful and tremendous to right the ship. The effects are two-fold, though, with the increased uncertainty adding to a lot of other uncertainty in the world and giving safe-haven trades such as gold and silver a boost. On the other side of the coin, the increasingly distant artificial Trump boost to the economy via tariffs, lower taxes and infrastructure has deflated already richly priced industrial metals.
Here's a look at the charts today.
Copper
The technical sell-off I mentioned yesterday is developing nicely, breaking the trend-line support at 2.6700. Short term profit taking has seen copper climb off the floor in Asia today, but a break of the lows at 2.6300 opens a test of the 55-day moving average (DMA) at 2.6178 targeting the 2.5000 regions from a technical perspective.
Silver
Gold’s little brother broke long term resistance at 18.0500 yesterday going back to July 2016. More significantly it closed above there and had marched higher in Asia today. From a technical perspective, this sets up a move to 19.0000 a previous double top. Support is the previous resistance at 18.0500 followed by the 200-DMA at 17.9600.
Gold
A 17 dollar rally from 1235 to 1252 overnight has given gold an adrenalin shot by breaking major resistance at 1245 with 1215 behind. Technically this becomes support with the next target the 200-DMA at 1262. A break of this level opens up a run at long-term term resistance around 1300 annotated by the red line.
Zooming out to get a view from 100,000 feet, the monthly chart makes interesting reading.
That resistance line on the daily chart, in fact, tracks all the way back to the all-time high at 1920. From a technical perspective, this underscores now just how important the 1300 region becomes. Gold is hovering around the 23.6% Fibonacci retracement of the monthly chart. More interesting yet, the 55 and 100-week moving averages come together at 1300.
Clearly, the 1300 level is a pivotal level for gold. If we get nothing from the Trump speech on the 28th, then we may be in for very interesting times for precious metals indeed.