The commodities market remains an exciting space to monitor in August. Commodities play a pivotal role in the financial markets, an asset class employed to add diversification to a portfolio, acts as an inflation hedge, and is used for speculation and investment purposes.
From gold clocking record highs to oil and copper prices navigating lower levels, the FP Markets Research Team have gathered five notable commodities, both hard and soft, worthy of your watchlist this month.
Gold
The price of gold versus the US dollar (ticker: XAU/USD) remains a widely watched precious metal, and rightly so. Year to date, the precious metal has rallied +19%, extending gains in 2023 (+13%). July also witnessed the precious metal reach another record high of $2,483, with scope to continue outperforming.
With the US Federal Reserve (Fed) anticipated to begin reducing its Fed funds target range in September, along with US Treasury yields and the US dollar (USD) recently exhibiting a strong sell-off, persistent price pressures in the US, as well as geopolitical risks, gold could navigate higher terrain over the coming months.
Commenting on the yellow metal's future performance, US investment management firm VanEck, said: ‘Considering the current macroeconomic and geopolitical environment […] we believe that gold prices could reach their inflation-adjusted highs of $2,800 per ounce in the near term’.
Technically Speaking:
While resistance is limited in this market, upside momentum has noticeably slowed. Take note of the strong upmove between February and April this year (black rectangle) and compare this to subsequent months (red ascending channel); we do not need a technical indicator to show that buying has slowed in recent months.
That said, the uptrend remains intact, and fresh all-time highs are a regular occurrence. In addition, the recent downmove from $2,483 has so far failed to register anything meaningful, suggesting that selling is weak and buyers are perhaps gearing up for another leg higher.
West Texas Intermediate (WTI) Oil
Compared to the USD, WTI oil has fared poorly since reaching a high of $84.49 at the beginning of July this year. Oil recorded its fourth straight loss last week (the longest losing streak since late 2023), down -3%, sending price action to within striking distance of June’s lows of $72.43. Year to date, however, oil remains in positive territory despite trading considerably off best levels (+3.9%).
Weakening global fuel demand and frail manufacturing data from the US, Europe and Asia do not bode well for oil prices. Crude oil demand for July was the lowest in two years out of Asia; China's fuel import demand was down by more than -10% in the first half of the year. However, geopolitical tensions in the Middle East also remain a concern. Oil prices rallied last Wednesday as Middle East tensions grew over the assassination of Hamas’ political leader during a visit to Iran.
Overall, oil’s picture is not optimistic. This highlights that sellers could maintain dominance in this market this month, with June’s lows targeted and a possible run to the December 2023 low of $67.74.
Technically Speaking:
Leaving the resistance area between $81.26 and $79.92 unchallenged, support is now within a stone’s throw away from welcoming price action at $72.69. This follows the strong downside push in the second half of last week. Should price continue beyond said support, thin support is visible until $68.65 since levels of support between the underside of $72.69 and $68.65 appear to have been consumed.
Copper
Copper, a widely traded base metal against the USD (ticker: XCU/USD), is up by +6.2% year to date, though it is down by -20% compared to its record highs of $5.19.
China’s economic growth (as measured by the Gross Domestic Product [GDP]) was weaker than expected in Q2 24, largely influenced by increased global trade restrictions. Copper imports from China have slowed as the country deals with stalling property and industrial sectors. This influences the price of copper as China accounts for more than +50% of global demand for copper.
Technically Speaking:
Since May this year, the price of copper has been on the back foot versus the USD, clearing supports with relative ease. Price action is also contained in a descending channel, taken from the high and low of $5.19 and $4.43. Technically, the chart demonstrates room for further selling to support at $3.96, a level complemented by the channel support, and trendline support, extended from the low of $3.51.
Aluminium
Aluminium versus the USD (ticker: XAL/USD) has declined since topping out at $2,800 at the end of May this year, falling -20% from highs. The fall has been largely triggered by demand concerns from China, the largest producer and consumer of aluminium. Soft manufacturing data from the US has dampened buyer sentiment, thus weighing further on the base metal’s price.
Despite weakened demand from not only the US but also other major developed countries, China’s overproduction has created a surplus of supply.
Technically Speaking:
According to chart studies, the price of Aluminium in terms of USD has been lower since reaching a high of $2,800.
Price also recently stepped below trendline support, taken from the low of $2,110, and retested the underside of the ascending line to form resistance. What also might interest technical analysts is the head and shoulders top pattern (head at $2,800), which was completed in mid-July (neckline breached). Price has yet to reach the pattern’s profit objective at $2,131, therefore, further underperformance could be seen for the base metal this month.
Cocoa
Against the USD, Cocoa witnessed strong gains at the beginning of 2024, rising to record highs of $11,635 in April. Despite the spirited start to the year, demand for the soft commodity has weakened, declining by approximately -40% from said highs.
The fall in the price of Cocoa is due to several factors, including demand concerns, unfavourable weather conditions, diseases, fertiliser shortages, and ageing trees. These factors have led to disappointing Cocoa output from two of the largest Cocoa producers in the world: the Ivory Coast and Ghana, which account for more than +50% of the world’s production.
Technically Speaking:
Versus the USD, Cocoa emphasises a bearish tone. Support between $6,554 and $6,847 is likely an area of interest for many traders and investors. Interestingly, the second test of the area managed to drive enough buying interest to reach a high of $10,197 (numbered 1). However, upon returning to the area, buying was lacklustre, only reaching a high of $8,063 (numbered 2). This places a bold question mark on the support and suggests an impending break lower to perhaps target support coming in at $5,794.
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