A tale of two metals, gold and copper

Six weeks have passed since the Feds hawkish shift at the June FOMC meeting that sent key metal prices spiralling lower. Copper has since recovered all of its lost ground and much more, while gold is trading -3.5% below its pre FOMC levels. In this article, we examine what comes next for gold and copper.

Gold 4

Gold

The Federal Reserve's hawkish pivot at the June FOMC meeting sent gold sharply lower from above $1850 to a low of $1751. The sell-off, a function of gold's negative correlation with rising US real yields/interest rates and a stronger US dollar.

Since then, the US dollar has failed to break higher and is showing signs of upside fatigue. As viewed on the chart below, US 5 year real yields have fallen back to record lows, leaving gold trading exceptionally cheap on this metric. 

A tale of two metals gold 1

However, investor's attitudes towards gold remain cautious, as witnessed by golds close back below $1800 overnight. Likely reflecting an expectation that real yields will push higher as the labour market improves in September after unemployment benefits expire nationally.

Technically while gold remains above trendline support at $1750, we will give the uptrend in gold the benefit of the doubt, needing a rally above $1834 to suggest a more robust recovery towards $1900 can unfold. Aware that should gold first slip below support at $1750ish, a deeper sell-off towards $1600 is likely.

A tale of two metals gold 2

Copper

The recent slowdown in China has been a headwind to copper, offset by strong demand from the rest of the world, moving further along the clean energy investment cycle.

An example of this, three times as much copper is used in electric vehicles than conventional internal combustion engines. However new copper supply has stagnated since 2016, leaving the market structurally undersupplied.  

This dynamic is behind the sharp move higher in copper this week, in line with expectations, we wrote about here two weeks ago. Thereby providing an excellent example of a trade idea supported by bullish fundamentals and technical' s.

However, it is not over yet, and providing copper does not retrace back below support at $4.40ish, the expectation is for a test and break of the May $4.88 high.

A tale of two metals copper 1

Source Tradingview. The figures stated areas of the 27th of July 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from Commodities

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.