Commodity Market In A Nutshell; Iron Ore Shows Potential Double Top

The commodity market is showing a mixed response today in the international market as investors seem to re-evaluate the global scenario.

Bullion Market:

In the recent event, global uncertainties have played a significant role is pulling or dragging the commodity market. The re-escalation in the U.S-China trade tussle has supported the gold prices in the international market, and the gold rallied from the level of US$1,272.90 (Day’s low on 23 April 2019) to the present high of US$1,510.38 (Day’s high on 7 August 2019).

The gold prices are now trading flat around its multi-year high levels, and the prices are currently trading at US$1,502.71 (as on 9 August 2019 06:40 PM AEST). The half-year trend in gold remained highly positive amid high buying activities from the central banks and global gold-backed ETFs.

However, now the new addition to the central banks buying is narrowing down; while the gold demand has taken a hit amid expensive valuation. The United States interest rate cut also played its role in the recent bull rally in gold by exerting pressure on dollar prices.

The stock markets across the globe are plunging amid trade fears, which is providing investors with an impetus to safeguard their investment, which, in turn, is keeping the gold prices steady at the upper levels. Another factor which is playing a crucial role in gluing the gold prices high is the rapid fall in bond yields or the market discount rate, which is making the bond prices expensive and supporting the gold prices.

While the bullion market is trading flat, oil markets across the globe have shown some recovery. Post the tweet from the United States President Donald Trump; the oil market sank amid gloomy picture over the global economic growth.

Oil Market:

Apart from the pessimism over the global economic growth, the increased domestic production of oil in the United States also exerted pressure on oil prices, and the Brent oil futures dropped from the level of US$67.65 (Day’s high on 11 July 2019) to the present low of US$55.88 (Day’s low on 7 August 2019).

In its recent meeting, OPEC and Russia decided to drop the production by 1.2 per cent of the total global consumption, which should have supported the prices; however, the opaqueness over the global growth scenario exerted pressure on the global oil demand, and the crude oil prices took a hit.

Post penning the low of US$55.88, the oil prices have shown some recovery from past two trading session, and the prices are currently trading at US$57.77 (as on 9 August 2019 06:55 PM AEST).

Steel and Iron Ore Market:

Iron ore prices have taken a jab in the international market despite a shortage in the supply chain, as the steel sector plunged over the worries of global growth, which was again propelled by the re-escalated U.S-China trade tiff.

The iron ore prices fell dropped from the price zone of RMB 915.00 (Day’s high on 31 July 2019) to the present low of RMB 741.00 (Day’s low on 7 August 2019).

The iron ore prices of the most active trading September series (DCIOU9) on the Dalian Commodity Exchange in China are showing an interesting development.

Iron ore On Charts:

DCIOU9 Daily Chart (Source: Thomson Reuters)

On the daily price chart, the iron ore prices are seemed to be forming a potential double top pattern (bearish pattern). The prices first rallied to the level of RMB 924.50 on 16 July 2019, post reaching the level the prices corrected slightly and moved up again.

However, in the second attempt prices could not breach the previous high of RMB 924.50 and halted the upside rally at the level of RMB 915.00 on 31 July 2019 with declining volumes, which in turn, created a pattern, which could be seen as a potential double top.

The prices have now currently breached the neckline of the pattern, and investors should monitor the present level closely as a break above and sustain would end the pattern formation; however, failure to do so could exert pressure on iron ore prices.

In the status quo, the China Steel and Iron ore Association (or CISA) is adopting stringent measures to curb the iron ore prices, and the prices have seen a sharp decline post the announcement. The Brazilian iron ore giant- Vale also started production, which in turn, is anticipated to by the market participants to offset the effect of the production loss over the long-run.

However, in a short-run, the steel market in China is estimated by many industry analysts to inch up, which as per the current supply scenario could support the iron ore prices.

Base Metals:

In the base metals market, nickel prices have seen a sharp upside over the supply deficit and future forecast of high demand. The reduction of tax on EV segment in India from 12 per cent to 5 per cent has also propelled the nickel demand and in turn supported its prices.

The prices of LME Nickel futures rallied from the level of US$11,627.50 (Day’s low on 11 June 2019) to the present high of US$16,687.50 (Day’s high on 8 August 2019). The prices are currently hovering at the high levels and are currently trading at US$15,730.0 (as on 9 August 2019 07:30 PM AEST).

Copper:

Copper prices have recently taken a jab in the internal market due to rising trade tensions between the United States and China; however, the recent estimation of the market for a decline in copper supply chain have supported the copper prices.

The prices of LME Copper futures plunged from the level of US$6,170.75 (Day’s high on 19 July 2019) to the level of US$5,641.75 (Day’s low on 5 August 2019). Post hitting the level of US$5,641.75, the prices recovered and are on the rise from past three consecutive trading sessions.

The prices of LME Copper Futures are currently trading at US$5,779.0 (as on 9 August 2019 07:30 PM AEST).

Aluminium:

The prices of aluminium moved in a continuous downtrend on LME from the level of US$2,256.0 (Day’s high on 18 April 2019) to the level of US$1,734.78(Day’s high on 7 August 2019) amid increased production of spodumene across the international market and higher alumina prices.

However, the prices recovered slightly in the international market in today’s session amid the news of production halt in Russel’s plant, and the prices are currently trading at US$1,778.25 (as on 9 August 2019 07:40 PM AEST).


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