Oil, Copper Fade with Risk Trade while Gold Holds Up ahead of G20

2016-02-23 06:38:00

Nathalie Huynh, Contributor

Talking Points:

Gold snapped 2-day loss as risk flight and volatility render flows into safe havens
Oil topped out upon gloomy supply news, lack of OPEC’s action
Copper retreated with stocks, weak fundamentals indicate prolonged weak demand

The risk rally faded somewhat after an initial eager response to China’s stimulus steps on Monday. Continual position adjustments derailed the risk rally in Asia, following mixed action during overnight sessions.

Oil price topped out at $33.84 after a whirlwind of neutral-to-bad news on supply prospects. El-Badri, OPEC general secretary, kept market players interested that a freeze is hopeful and inclusive to non-OPEC countries. The International Energy Agency (part of OECD) predicted this global surplus will persist into next year, effectively limits any price rebound. Meanwhile, rating house Standard and Poor’s downgraded a number of oil producers.

In the absence of a concrete execution plan to cap production, oil price remains vulnerable to market forces – which is short-term in nature.

Copper price also marked an inside-day today as risk assets retreated in Asia to give rise to safe haven and fixed income. Large miner BHP today reported $5.67 billion loss over half-year, and cut dividend for the first time in 15 years. The company cited an economic shift in China (from resource-rich manufacturing to services) to have led to prolonged weakness in metals.

Gold price picked up on buying interestsfrom the risk flight, although this has started to reverse again in mid-afternoon Asia. Gold holdings via exchange-traded funds (ETFs) rose to the highest level in nearly a year, at a 14 percent increase. Current broad market volatility likely aids inflows into gold and safe haven currencies.

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GOLD TECHNICAL ANALYSIS – Gold price resiliently holds up through both recent risk-on and risk-off markets, especially at the downside. Volatility in other assets naturally transpired to stable flows into gold, so it likely retains a safe distance from trend line support. Sideway movements dominate in near term.

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper price has taken the trend line for resistance level and consistently climbed up on lower side of it. As price action progresses near resistance at 2.1485, a breach of this trend line is therefore critical to higher moves. At the downside, support at 2.0020 stays firm.

Daily Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS – 34.25 resistance level proves tough for WTI oil to challenge. Momentum reverses downward so lower moves are expected for the rest of today. Oil remains largely range bound with the occasional high volatility near either boundary.