Gold and Silver May Continue Slide On Positive US Manufacturing Data

Talking Points

• Crude oil and copper look to upcoming US manufacturing data to fuel fresh gains
• Gold vulnerable to further declines as traders move towards yield-plays
• Copper may be poised to extend advance above $3.00 based on technical readings

Gold is treading water in Asian trading following a dip below the critical $1,285 mark during the US session overnight. Meanwhile copper continues to hover above the key $3.00 per pound handle as traders weigh the potential impact of lukewarm Chinese manufacturing data on demand for the base metal. Further strength for the growth-sensitive commodities is likely contingent on risk-appetite, which may be buoyed by positive US manufacturing data in the session ahead.

Drive To Yield Dampens Gold Demand

Gold continued on its downward trajectory in US trading as dovish comments from Fed Chair Janet Yellen likely drove investors towards high-yield plays, and away from the precious metals. This came despite a dip in the US Dollar, which suggests that even the prospect of continued accommodative policy from the Federal Reserve is not substantial enough to support the gold price.

US Data and Risk-Trends To Guide Commodities

A set of conflicting signals from the official and HSBC China manufacturing readings today has likely prompted some hesitation amongst the copper bulls in Asian trading. Similarly, crude oil has failed to find traction following the recent break above the $100 handle.

Fresh gains for the growth-sensitive commodities may hinge on a strong US ISM manufacturing reading due in the session ahead. Additionally, a positive print from the key gauge of economic activity may continue to propel traders towards yield-plays, which in turn may weigh on gold and silver prices.

General risk-trends are also likely to prove a more notable driver for the commodities space as we once again push towards record highs for US benchmark equity indices. As the bulls’ resolve is tested if risk-appetite falters, crude oil and copper could suffer.

CRUDE OIL TECHNICAL ANALYSIS – The 20 SMA and rate of change indicator both suggest a shift towards an uptrend for crude oil. However, a Shooting Star candlestick formation which awaits confirmation may be warning of a quick about-face for the commodity. Sellers continue to sit at the 61.8% Fib Retracement level (near $102.00), while buyers may be prepared to step in and support prices around the psychologically-significant $101.00 handle.

Daily Chart - Created Using FXCM Marketscope 2.0

GOLD TECHNICAL ANALYSIS – A bearish technical bias for gold is retained given the short-term downtrend remains intact alongside several breaks below important support levels. While there are signs of hesitation amongst the bears near the 50% Fib Retracement level ($1,285), any gains for the yellow metal may be limited by strong resistance at the psychologically-significant $1,300 handle.

Daily Chart - Created Using FXCM Marketscope 2.0

SILVER TECHNICAL ANALYSIS – Silver remains in a short-term downtrend as signaled by prices holding below their 20 SMA. However, the rate of change indicator is beginning to reflect waning downside momentum, which may signal the potential for a short-term bounce. A retracement back towards resistance at $20.50 would be seen as a new opportunity to enter new short positions with a target offered by support at $19.00.

Daily Chart - Created Using FXCM Marketscope 2.0

COPPER TECHNICAL ANALYSIS– The short-term trend for copper has shifted to the upside as indicated by the 20 SMA and rate of change indicator. Alongside the break above the critical $3.00 handle a bullish technical bias is offered with the potential for an extension to the 38.2% Fib Retracement Level at $3.085.

Daily Chart - Created Using FXCM Marketscope 2.0

Written by David de Ferranti, Market Analyst, FXCM Australia

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