Gold: December US Rate Hike Expectations Weigh On Gold

The yellow metal came under pressure this week as fresh comments from Fed members encouraged expectations of a December rate hike. Philadelphia Fed President Harker said that the Fed should “prudently move up to the neutral real rate as quickly as possible” noting that “very little slack” remains in the US labor market. New York Fed President Dudley also backs quickly moving back to the neutral rate noting that “pressure on resources will drive wages up over time”.

Gold had rebounded last week following the release of the FOMC minutes which highlighted the Fed’s concern over low inflation. However, following last week’s release of a strong headline CPI print for September, USD bulls are now strongly expecting a rate increase in December with the CME group forecasting tool pricing in a 92% chance of a .25% hike.

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After challenging the 1296.13 level last week, which was key resistance over the summer, the price has since reversed lower. The next key support level will be a test of the rising channel base with the structural low at 1204.89 (July low) the next key level.

Silver: Rally Stalls As Speculators Take Profit

Silver prices were broadly unchanged this week. Despite some upside over the week prices fell back into the second half of the week due to profit taking from speculators and weaker global cues. Momentum has stalled in Silver over the last two weeks linked to conflicting views on the Fed. Last week’ FOMC minutes seemed to point to a weaker chance of a Fed rate hike while the recent CPI print and this week’s Fed comments have bolstered expectations of a December rate hike.

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Silver continues to move within a large contracting triangle pattern. After failing at the 17.4819 level, the price has since turned lower and is now just above rising trend line support from last year’s lows. Below there, the next key level will be the October low around 16.3136.

Copper: China Demand Expectations Fuel Rally

Copper prices surged again this week and are now up around 10% since late September. Rising expectations of demand in China, linked to the country’s bi-decennial Communist Party Congress, have fuelled a strong bid in Copper this week. However, the upside was limited due to increased expectations of a December US rate hike in response to the recent US CPI print and Fed comments. The outlook for copper contains further clouds also following a report by the Peruvian government this week that they have had a large amount of interest in the auction planned for a major copper development over the next few months with over 20 firms showing interest in the Michiquillay.

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The rally in copper prices this week saw price challenging the mid-2014 swing high around 3.267 where the red metal found resistance and turned lower. Below market, the next key support will be a retest of the broken 2015 swing high around 2.952. If price holds above this level, the focus will stay on further upside.

Iron: Schroders Forecast Sub $50 Iron

The recent decline in Iron ore prices looks set to continue as the fundamental picture in China looks increasingly negative. Schroders Plc released a report this week forecasting iron to fall back below $50 over the next year, as the positive impact of credit stimulus in China wears off, and say they “wouldn’t be surprised to see iron ore back in the $40s”.  Despite iron ore having crashed into a bear market over the last month, bumper import figures from China for September helped stem the negative flow, though the outlook from Schroders is for further downside, a forecast shared by Citigroup and the Australian government.

The sell-off in Iron found some support at the $60 level, but given the steepness of the recent decline, the focus is on a further downside with the year to date low the next key target ahead of the $50 level highlighted by Schroders.