Gold Up on Safe-Haven Buys. Copper, Oil Drop as China Factories Slow

Talking Points:

• China Caixin Manufacturing PMI missed forecast, induced risk-off trades, dampened commodities
• Gold scored big gains as safe-haven bids added to rate delay bets
• Oil dragged as supply glut and China slowdown prevail
• Copper weak from demand risk after low USD caused overnight gains

At mid-morning in Asia, the China Caixin Manufacturing PMI for August was released at a disappointing 47.1, lower than the forecast of 48.2 and prior figure of 47.8. The gauge is a main indicator of the health of Chinese economy which also transpires to a market driver for commodities. Oil, copper and industrial metals deepened their losses, while gold added gains from safe-haven interests.

Overnight, the market’s reaction to seemingly reduced probability of a September rate rise manifested to rallies in US Treasuries, gilts (UK government bonds), Australia / New Zealand government bonds, and of course in gold as the alternative to the ratehike story. US dollar’s weakness across the board also supported commodities prices.

Gold perpetuated another record daily gain today as it rose 1.7 percent before China PMI and up to 2.33 percent after the disappointing data provoked safe haven buying interests. Yesterday, gold scored the best daily gain in three months at 1.6 percent due to bets of delayed interest rate rise. An added angle to the bullish case for gold is risk that the third Greek bailout may face disruptions with the resignation of Greek Prime Minister Tsipras and a subsequent snap election on September 20. Technical analysis highlighted that uptrend signal has intensified, with Fibonacci levels acting as resistance levels along the rise. Today 61.8% Fibonacci comes as resistance at 1170.7.

Today’s losses in Brent and WTI oil deepened after the China Caixin PMI missed forecast. Brent looks particularly weak after an overnight slump to fresh low at 46.62. Oil is heading for the longest weekly losing streak since 1986 amidst a global supply glut and uncertain global demand. The bearish outlook for oil is here to stay as the U.S. and main exporters of OPEC braved the price war to maintain their output.

Copper stabilized below yesterday’s high at 2.3305 amidst downside risk to demand as the China factory gauge slumped (see above). Yesterday copper climbed back from its six-year low of 2.26 subsequent to a lower US dollar. Today’s intraday support levels are found at 2.3070 then 2.2930.

GOLD TECHNICAL ANALYSIS – The rapid rise in gold has aligned with Fibonacci levels so far (see below). Therefore today’s resistance level can be found at 61.8% Fibo at 1170.79. Moving averages indicate that uptrend signal is strengthening, a good news for the gold bulls and prompted opportunities to enter long positions.

Daily Chart - Created Using FXCM Marketscope

COPPER TECHNICAL ANALYSIS – Copper prices moved sideways today with a light downside bias. Despite yesterday’s climb, there has not been any change to copper’s downtrend signal in the daily chart. Intraday support levels are found at 2.3070 then at 2.2930. Resistance level likely comes at yesterday’s high at 2.3305. The recent upward extensions may provide chances for the copper bears to enter short positions.

15-minute Chart - Created Using FXCM Marketscope

CRUDE OIL TECHNICAL ANALYSIS – Nothing has changed for the bearish technical outlook of WTI and Brent oil with clear downtrend signals in moving averages. Both indicators have persistently edged down, although WTI prices seem to pause today. Brent oil intraday chart (below) shows a double bottom at 45.98 in the Asian morning, which may help to scale back its recent freefall.

Daily Chart - Created Using FXCM Marketscope

15-minute Chart - Created Using FXCM Marketscope

--- Written by Nathalie Huynh, Currency Strategist for DailyFX.com

Contact and follow Nathalie on Twitter: @nathuynh