Technical check: Here's how you can trade in gold, silver and base metals

Trading strategies by Gnanasekar .T, director at Commtrendz Research

 

GOLD 

Gold prices firmed on Thursday as the dollar faltered following dovish comments from U.S. Federal Reserve Chair Jerome Powell, calming investor concerns over the pace of rate hikes. The dollar slipped from a two-week high on Wednesday after Powell said interest rates are just below neutral, raising expectations that the U.S. central bank is closer to the end of its rate hike cycle.

Investors expect more clues on the Fed's monetary tightening path from the minutes of the US central bank's December 7-8 meeting. The Fed has raised rates three times this year. The Fed takes equally seriously the risks of hiking too quickly and shortening the economic expansion, and on the other hand of hiking too slowly and prompting higher inflation or financial instability, Powell said.

Gold prices lost to dollar this year as the investors preferred the safe-haven currency, as the U.S.-China trade war unfolded and U.S. interest rates rose. Markets are also focused on the G20 summit in Buenos Aires this weekend, where U.S. President Donald Trump and his Chinese counterpart, Xi Jinping are scheduled to discuss trade matters.

Gold price chart

The inverse dollar co-relation has been weak over the past weeks, suggesting that prices could see a rally higher if the dollar were to weaken further. We see prices breaking out of the recent range of $1210-1229 heading towards $1245 levels immediately. Close above here could strengthen the case for a push towards $1275-85 levels in the coming weeks. 

Look to buy gold futures on dips to $1215-20; stop loss $1205 with targets at $1245 followed by $1265. Supports are at $1215, $1205 and $1185; Resistances are at $1245, $1265 and $1289.
 

SILVER

Silver rallied a bit during the trading session on Wednesday but rolled over to give up the gains. We believe silver is one of the most undervalued investments on the planet right now and that our analysis supports a longer-term view that silver could reach at least $25-$30. The ratio is around 85:1 on a spot basis as this is being written, having averaged 85:1 in October. Though the ratio has been even worse in the 90's, the difference now is that price is already languishing near the lows, which was not the case then. 

The silver bears have not been successful in breaking key supports so far. Silver bulls' next upside price breakout objective is closing March futures prices above solid technical resistance at the October high of $15.055 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $13.75.

Silver price chart

First resistance is seen at near-term high of $14.405 and then at the critical resistance at $14.85-90. Next support is seen at $14.00 and then at the November low of $13.985. The $14.00 level underneath is significant support, but it looks as if the market is trying to break through it. Once it does, I think that the silver market will probably go looking towards the $13 level in the near-term before the ratio effect kicks in and lifts prices higher again. Buy Silver on dips to $14.10 stop loss $13.85 with targets at $14.75 followed by $14.90.
 

BASE METALS

Base metals rose on Thursday, tracking equities after investors saw comments from the U.S. Federal Reserve chair as a sign the central bank's interest rate hike cycle is drawing to a close. Jerome Powell said at a lunch on Wednesday that the Fed's policy rate is now "just below" estimates of a level that neither brakes nor boosts a healthy U.S. economy. Higher interest rates mean higher borrowing costs, which can reduce economic activity and consumption, and see capital flow into assets with higher yields than commodities. 

base metals chart

Trade uncertainty continues to weigh ahead of a meeting between U.S. President Donald Trump and Chinese counterpart Xi Jinping at the G20 summit in Argentina. This supports our opinion that the metals markets are dramatically underpriced in relation to global risk and potential future events. The only thing, in our opinion, that could prevent a new price rally from forming over the next six months is a continued malaise in investor sentiment or continued strength in the US dollar. The important and compelling reason for getting bullish on metals going forward, is producers not having increased capacity due to lingering low prices, which could create a supply tightness going forward.

The technical picture hints at more upside and is slowly preparing for it moving in a broad range. We favour an upside trajectory for LME prices towards $6500 initially or even higher to $6700 with supports at $6200 followed by strong supports at $ 6090

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(The author is the Director of Commtrendz Research and these are only  guidance for prices. He is not liable for any gain/loss arsing out of it.  He can be reached at gnanasekar.t@commtrendz.com. )