Commodities round-up: Is gold back in fashion?

Friday, 23rd April 2021 09:19 - by Rajan Dhall

This week in the macro markets we have heard from some central banks. The Bank of Canada gave us the biggest surprise. BoC's Macklem kicked off by saying nothing new he stated, "We want to be very clear-Canadians can be confident that borrowing costs are going to remain very low for a long time.". The GDP forecast for the nation was boosted to 6.5% from 4.0% in January and with this increase in the outlook the BoC have tapered their QE, the real suprise. The bank reduced its weekly asset purchases to C$3bn per week from $4bn. This was because the central bank said “the progress made in the economic recovery”. This is the second taper, after the bank cut its weekly purchases from the initial C$5bn per week back in October.

The question is, will other central banks follow suit and this is the major thing that could affect commodities in the future. If the central banks scale back QE, it might put some more pressure on the recoveries in the respective nations. The commodities boom shows that inflation is on the way and this will also put pressure on the pockets of consumers and therefore wages. The ECB and Fed have reiterated that there is no plan to taper any time soon but now one central bank has made the first move traders could start to up their bets on when this could happen.

Apart from a small wobble, the risk markets have been performing well of late (S&P and DAX). The biggest threat to gold is still the fixed income space and the US 10 year note has pulled back slightly. We have also seen a pullback in the US dollar as the DXY fell from 93.43 to a low of 90.85 this week. Looking at the technicals on the weekly chart, the price has move above the 38.2% Fibonacci retracement zone and broken a former wave low at $1767.2/oz. The next big zone is at $1852/oz and if the bulls manage to creep about that level the bull market is firmly back on track. A key feature on the chart is the bull flag, if this breaks then a move higher could be on the cards.

Source: TradingView

When speaking about copper it seemed only fair to look at the monthly chart. This highlights the amazing rise following the trendline break back in July 2020. One interesting technical point to watch is the fact that the price stalled at the 76.4%/161.8% confluence area. Now this level has been taken out, the next level to watch is the high from two months ago at $4.37/lb. Beyond that, the high on the chart of $4.64/lb is the next area of interest.

In terms of fundamentals, the new green economy offers a great opportunity for copper investors and miners. An article published in Australia stated that copper could be more important than the likes of lithium and palladium when it comes to the EV boom. The article pointed out that all of the charging grids and mobile charging units will need more copper than the base materials needed for the batteries themselves. Keep an eye on this fact as we moved into the rest of the year as it could become more prominent. At the moment it is clear that the demand-supply imbalance is sending the price soaring higher.

Source: TradingView

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.