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EUR/USD continues to edge higher toward 1.1000 after posting small gains on Monday. Relatively dovish comments from European Central Bank (ECB) officials and the sour market mood, however, could cap the pair’s upside in the near term.
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.18% | 0.15% | -0.75% | 0.51% | 0.90% | 0.52% | -0.55% | |
| EUR | 0.18% | 0.40% | -0.54% | 0.73% | 1.07% | 0.70% | -0.39% | |
| GBP | -0.15% | -0.40% | -0.97% | 0.31% | 0.67% | 0.34% | -0.66% | |
| JPY | 0.75% | 0.54% | 0.97% | 1.26% | 1.64% | 1.22% | 0.24% | |
| CAD | -0.51% | -0.73% | -0.31% | -1.26% | 0.41% | 0.00% | -1.05% | |
| AUD | -0.90% | -1.07% | -0.67% | -1.64% | -0.41% | -0.32% | -1.40% | |
| NZD | -0.52% | -0.70% | -0.34% | -1.22% | -0.01% | 0.32% | -1.03% | |
| CHF | 0.55% | 0.39% | 0.66% | -0.24% | 1.05% | 1.40% | 1.03% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
The US Dollar (USD) struggled to build on the previous week’s gains on Monday and allowed EUR/USD to hold its ground. Nevertheless, the risk-averse market atmosphere, as reflected by sharp declines seen in Wall Street’s main indexes, made it difficult for the pair to push higher.
In an interview with the Slovenian daily, Delo, on Tuesday, Frank Elderson, Vice-Chair of the Supervisory Board at the ECB, warned of economic growth risks materializing, adding that he is open-minded about the next policy action ahead of the October meeting. Meanwhile, ECB policymaker Martins Kazaks argued that inflation is not fully defeated but said that data point to an interest rate cut next week.
The US economic calendar will not offer any high-impact data releases in the second half of the day. Hence, investors are likely to pay close attention to the risk perception. In the European session, US stock index futures trade virtually unchanged. In case the safe-haven flows dominate the market action in the American session, EUR/USD could struggle to extend its rebound.
The Relative Strength Index (RSI) indicator on the 4-hour chart recovered above 40 early Tuesday, pointing to a weakening in bearish pressure. Looking north, immediate resistance could be spotted at 1.1000 (round level, Fibonacci 50% retracement of the latest uptrend) before 1.1040 (Fibonacci 38.2% retracement) and 1.1100 (Fibonacci 23.6% retracement).
On the downside, supports align at 1.0950 (Fibonacci 61.8% retracement), 1.0900 (round level) and 1.0870 (Fibonacci 78.6% retracement).
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
After closing in negative territory on Monday, GBP/USD staged a modest recovery early Tuesday but lost its traction after meeting resistance near 1.3100. The pair’s technical outlook suggests that sellers look to retain control in the near term.
The table below shows the percentage change of British Pound (GBP) against listed major currencies last 7 days. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 1.29% | 2.11% | 2.90% | 0.85% | 2.73% | 3.68% | 1.04% | |
| EUR | -1.29% | 0.80% | 1.58% | -0.43% | 1.42% | 2.35% | -0.27% | |
| GBP | -2.11% | -0.80% | 0.77% | -1.23% | 0.60% | 1.55% | -1.05% | |
| JPY | -2.90% | -1.58% | -0.77% | -1.97% | -0.14% | 0.77% | -1.79% | |
| CAD | -0.85% | 0.43% | 1.23% | 1.97% | 1.86% | 2.80% | 0.19% | |
| AUD | -2.73% | -1.42% | -0.60% | 0.14% | -1.86% | 0.92% | -1.67% | |
| NZD | -3.68% | -2.35% | -1.55% | -0.77% | -2.80% | -0.92% | -2.54% | |
| CHF | -1.04% | 0.27% | 1.05% | 1.79% | -0.19% | 1.67% | 2.54% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The negative shift seen in risk mood at the start of the week caused GBP/USD to edge lower. Early Tuesday, investors adopt a cautious stance amid growing concerns over an economic downturn in China.
The National Development and Reform Commission (NDRC), China’s state planner, said on Tuesday that the downward pressure on China’s economy is increasing, adding that they are facing more complex internal and external environments.
Reflecting the souring mood, the UK’s FTSE 100 Index is down more than 1% on the day. Meanwhile, US stock index futures trade virtually unchanged.
In case the market atmosphere remains risk-averse in the second half of the day, GBP/USD could come under renewed bearish pressure. NFIB Business Optimism Index for September and RealClearMarkets/TIPP Economic Optimism Index data for October will be featured in the US economic docket on Tuesday, which are unlikely to trigger a noticeable market reaction.
The Relative Strength Index (RSI) indicator on the 4-hour chart stays below 40, suggesting that sellers look to retain control. Interim support seems to have formed at 1.3070 before 1.3050 (static level) and 1.3000 (round level, static level).
If GBP/USD manages to rise above 1.3100 (Fibonacci 78.6% retracement level of the latest uptrend) and starts using this level as support, sellers could be discouraged. In this scenario, next resistance could be spotted at 1.3170 (Fibonacci 61.8% retracement).
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
That being said, if we were to break down below the 1.09 level, then I think you have real issues at this juncture where we could see the US dollar really take off. That being said, I do think that it’s overdone and a bounce makes a certain amount of sense. Perhaps reaching the 50 day EMA, which is at the 1.1050 level. Ultimately, this is a market that is going to reflect risk appetite and if we start to see risk appetite really fall apart, then you probably see the US dollar strengthen. In general, this is a market that I think continues to be range bound overall. As a result, I think you continue to see a lot of choppiness and therefore you need to be cautious with your position sizing. But with this, I do think that we’re getting a little supported.
If we were to break down below the 200-day EMA on a breakdown, that really could send this market reeling, perhaps down to the 1.0775 level, which I think at that point in time you would see most RIS assets getting absolutely hammered. It’s not necessarily that the euro is extraordinarily risky, it’s just that it isn’t the dollar, and that’s probably the big thing to take away. All things being equal, this is a market that I think continues to dictate what you want to do with the US dollar against many other currencies, not just this one.
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Gold price maintains its corrective decline early Tuesday, looking to threaten the lower boundary of the recent range at $2,630. The focus now remains on the Middle East tensions, additional Chinese stimulus rollout and speeches from US Federal Reserve (Fed) policymakers for fresh directives.
Gold price is struggling to find a foothold, as sellers remain in control amid the re-emergence of worries surrounding China’s economic prospects, as Chinese traders return after a week-long holiday break.
Even though Chinese stocks re-opened with a bang, no announcements on further stimulus so far and the National Development and Reform Commission’s (NDRC) gloomy outlook on China’s economy intensified risk aversion across Asia.
China’s state planner, the NDRC, said in its press conference that “the downward pressure on China’s economy is increasing.” Gold price, therefore, remains undermined, as China is the world’s top Gold consumer.
The Gold price correction, however, appears cushioned by a broad pullback in the US Dollar (USD) alongside the US Treasury bond yields, following the dovish remarks from St. Louis Fed President Alberto Musalem. Musalem said late Monday that “further gradual reductions in the policy rate will likely be appropriate over time,” adding that “I will not prejudge the size or timing of future adjustments to policy.”
His comments fuelled a fresh leg down in the USD, despite markets ruling out a 50 basis points (bps) Fed rate cut next month. Markets are currently pricing in about an 86% chance that the Fed will opt for a 25 bps rate cut at its next meeting, the CME Group’s FedWatch Tool shows.
Looking ahead, speeches from Atlanta Fed President Raphael Bostic and Fed Vice Chairman Philip Jefferson will be closely scrutinized in the absence of any top-tier economic data releases from the US later on Tuesday.
Traders will also pay attention to the escalating conflict between Israel and Iran, especially after the Iran-backed militant group, Hezbollah, fired dozens of rockets at Israel’s third-largest city, Haifa. Meanwhile, the Israeli military has described its recent ground operation in Lebanon as “localized, limited and targeted,” but it has steadily increased in scale beginning last week.
Following a gradual decline over the last four days, Gold buyers are seen challenging the key static support of $2,630.
The 14-day Relative Strength Index (RSI), however, stays well above the midline, currently near 62, suggesting that any decline in Gold price could be likely bought into.
Gold price needs a daily candlestick closing above the strong resistance near $2,670 to negate the near-term downside pressure.
The next resistance is aligned at the record high of $2,686. Further up, buyers will target the $2,700 round level.
On the flip side, Gold sellers must crack the intermittent low of $2,630 on a daily closing basis to unleash further correction toward the $2,600 threshold.
Ahead of that level, the 21-day Simple Moving Average (SMA) at $2,614 could offer a temporary relief to buyers.
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Please refer to the Important Notice at the end of this article1
Copper has shaped human history and civilisation for millennia. In the 20th century, the story of copper was inextricably linked to the rise of electricity demand. As we harnessed electrical power, copper became an indispensable material, crucial to our energy systems and modern technology.
Through the 21st century, we expect copper to remain an essential building block to modern life as the world seeks to improve living standards for billions of people, transitions towards a net zero greenhouse gas (GHG) emissions economy, and further digitalises its industries and societies.
In this article, we discuss:
Total global copper demand has grown at a 3.1% compound annual growth rate (CAGR) over the last 75 years – but this growth rate has been slowing. It was only 1.9% over the 15 years to 2021. Looking to 2035, however, we expect this growth rate to jump back to 2.6% annually.
We believe this reversal will come from a combination of three key themes: ‘Traditional’ economic growth, and the newer themes of the ‘Energy Transition’ and ‘Digital’ (primarily data centres).
‘Traditional’ demand refers to the basic relationship between economic growth, electricity consumption and copper. Through the 20th century and into the 21st, as countries developed, electricity became accessible to industry and homes and led to the creation of products that lifted living standards: lighting, washing machines, refrigerators, air conditioners, radio and television, computers and smartphones. It is not only these products that need copper; so do the factories and supply chains that produce and deliver them, and the power infrastructure keeping them all running. Copper’s broad application across multiple end-uses has made it resilient and less-exposed to single point failures of demand.
Traditional demand in the developed world is expected to remain strong and as living standards rise globally, the demand for copper is expected to follow suit. Developing economies, which have nearly five times the population of high-income economies, will increasingly strive to achieve the same high standard of living. This transition will lead to a greater need for copper.
Take China for example, despite its enormous appetite for copper over the past two decades, it still only has half of the copper accumulated stock-in-use per capita (e.g. buildings, machinery, vehicles) compared to a developed economy, at around 100 kilograms per capita. India, the other major economy with over one billion people, also has a compelling copper story. India’s electricity consumption per capita currently stands at around one-seventh of Japan’s and one-fifth of China’s, and we expect its copper demand to grow five-fold over its pre-Covid volumes in the coming decades as electricity is made more accessible.
This traditional demand provides a solid foundation, but it does not account for the rapid acceleration of growth expected in the decades to come. That will be driven by the ‘Energy Transition’ and ‘Digital’ trends.
Since the Industrial Revolution, the use of fossil fuels has helped the world unlock greater levels of productivity. As the world seeks to rein in the use of these fuels (and their related carbon emissions), it will need more electricity (mainly from renewable sources) to keep everything running. Most energy modellers agree that electrification will be a major enabler of the decarbonisation of transport, buildings and large parts of industry. Under our base case, we see electricity demand roughly doubling from today to 2050, as electricity’s share of total energy consumption also doubles to around 40% by 2050.2
‘Energy Transition’ copper demand refers to the additional copper required to achieve that level of electrification. As the most conductive industrial metal, copper is a key enabler of low GHG emissions energy sources, such as wind, solar, and hydro, as well as electric vehicles (EV) and batteries. An EV, for example, uses around three times more copper than typical internal combustion engines (ICE). As the energy transition unfolds, we anticipate the roll-out of EVs to lift the transport sector’s share of total copper demand from around 11% in 2021, to over 20% by 2040.3 Copper is also needed for energy efficiency and conservation measures, such as smart grids, LED lighting, and heat pumps. On top of this, the generation and transmission of low GHG emissions electricity is expected to require more copper than conventional fossil fuel power generation.4
‘Digital’ demand refers to the growth from the expected ramp-up in demand for digital infrastructure, as the world creates and consumes massive amounts of data, enabled by copper-hungry data centres. Artificial Intelligence (AI)-enabled technology requires vast amounts of data and processing capability, which in turn needs larger and faster computers consuming more electricity. We expect global electricity consumption for data centres to rise from around 2% of global demand today, to 9% by 2050, with copper demand in data centres increasing six-fold by 2050.5
Today, we estimate that the Traditional vs Energy Transition vs Digital split of global copper demand is around 92%/7%/1%. By 2050, we predict the split to have evolved to 71%/23%/6%.6
What is unique about the next 25 years is the way copper demand from electrification, decarbonisation and digitisation will cut across high, middle and lower-income economies alike. Unlike the 20th century, where the adoption of cars, electricity, consumer electronics and white goods occurred at different times across various regions, we expect to see more-or-less concurrent adoption of the copper-intensive technologies of EVs, renewables and data centres around the world.
There will be some balancing factors for this significant growth in copper demand, such as from substitution and thrifting, which have been a feature of the copper industry throughout its history.
When it comes to copper-to-aluminium substitution, many have long held to the ‘three to one’ rule of thumb: when the copper price is more than three times the price of aluminium, you will start to get increased levels of substitution. More recently, some estimates have adjusted this ratio higher, to around 3.5 times.
However, the copper-to-aluminium ratio7 has been in excess of 3.5 for much of the past five years, supporting our belief that the price ratio needs to be higher still, at around 3.5 to 4 times, before you see greater levels of substitution.
It is not just about cost either. Substitution and thrifting require design alteration, product line modification and investment in new equipment, and worker retraining. And uptake relies on customers believing the product works as well or better than what they can access today. None of these things happen quickly, especially in the well-established ‘traditional’ end-uses. The sectors that are most exposed to substitution and thrifting are those driving demand in the Energy Transition segment. These new technologies are still undergoing evolution and development, and each iteration presents a new opportunity to reduce copper use – up to a certain limit.
We also believe copper has some unique advantages that make it difficult to substitute or thrift in many end-uses, such as its conductivity, durability, recyclability and antimicrobial properties. This is why it remains widely used, despite potentially cheaper options being available. Copper also has a smaller GHG emissions intensity8 footprint than aluminium, which may be a relevant factor when choosing materials in the future.
While we expect substitution and thrifting will rise from current levels, this should be a gradual process, as has been observed over the past century.
Putting all these levers together, we project global copper demand to grow by around 70% to over 50 Mt per annum by 2050 – an average growth rate of 2% per year.
Due to the concurrent adoption of new copper-intensive technologies, as well as support from the broad-based ‘traditional’ development across end-uses in emerging economies, we anticipate a re-acceleration of copper demand to 2035 of 2.6% CAGR, versus a 1.9% CAGR over the past 15 years. In absolute terms, this is roughly 1 Mt copper demand growth per year, every year, until 2035 ‒ double the 0.5 Mt annual growth volume of the past 15 years.
As with demand, there are different drivers of copper supply. First and foremost, primary supply comes from mines and processing facilities such as those that BHP operates.
But secondary, or scrap, copper is also an important source of supply. Copper can be recycled from end-of-life products (‘old scrap’) or from waste generated in the manufacturing process (‘new scrap’), reducing the need for primary copper from mining.9
Recycled copper is expected to be an important source of supply to meet the large copper demand growth over the next 30 years. The main barrier to recycled copper supply is the availability of scrap.
The pool of ‘old scrap’10 is principally determined by the average lifetime of an end-use product. These lifetimes can range from weeks or months for some consumer products (e.g. from batteries, headphones, charging cables) up to several decades (e.g. from construction and infrastructure). We assess the average life of copper in-use to be around 20 years.
Much of this ‘old scrap’ is also not recovered. We estimate that in 2021 only 43% of available ‘old scrap’ was collected and recovered for re-use, falling to 40% in 2023 as lower prices, slowing economic activity and regulatory changes acted as headwinds. Rising ‘scrap nationalism’ to preserve the local use of secondary material and restrictions in cross-regional waste trade have also acted as a drag on growth for global scrap collection and recovery11 (and may affect the availability of scrap in developing countries who have not yet built up their own substantial pool of copper in-use).
Nevertheless, we expect the increased focus on copper as a critical or strategic raw material will lift copper scrap collection and recovery rates from their current levels to 56% by 2035 and even higher longer term.12
With the growing scrap pool, we estimate that scrap supply will increase from around one third of global copper today to around 40% by 2035, and reach around a half of total copper consumption by 2050.
But even with this increasing use of copper scrap, we still expect more primary, or mined, copper will still be required when you add grade decline and mine depletions on top of this.
We estimate that the world will need about 10 Mtpa new mined copper supply13 in the next 10 years.
Where will it come from?
Copper reserves and production are concentrated in Latin America, Australia and Africa. The last 30 years has seen impressive supply growth globally, with production doubling to around 22 Mtpa today, primarily due to increases from Latin America (particularly Chile), the Asia Pacific region and Africa (over the last 10 years). This has been achieved through significant investment in greenfield projects and the wide-spread adoption of the leach-solvent extraction-electrowinning (SxEw) process from the mid-1980s, which unlocked previously uneconomic copper supply low grade oxide ores. This process now accounts for 20% of mine supply.
The industry’s current challenge is to repeat this substantial volume growth in less than half the time.
We expect supply growth over the next 10 years to be dominated by the same regions – Latin America Africa and Asia Pacific – with Africa having the highest growth rate (albeit off a much lower base than Latin America), and Latin America continuing to make the most significant contribution in absolute terms.
View the full size map here.
Against optimistic supply forecasts, which include the development of all probable copper projects, a significant gap to expected demand in 2035 is evident, even with our positive view on copper scrap supply.
Currently operating copper mines are expected to provide more than half of the copper required to meet future global demand over the next decade. Even so, we estimate existing mines to be producing around 15% less copper in 2035 than they do today.14
These mines are already mature and are likely to need additional capital investment to replace or upgrade aging infrastructure or processing facilities. Alternatively, they may take advantage of new technologies that can improve their efficiency or recovery (e.g. converting oxide leaching plants to sulphide leaching, or recovering copper from waste). They are also likely to need to comply with new and higher standards when renewing or extending permits and licences to meet the evolving expectations of communities, customers and regulators.
Existing copper mines also typically face declining grades, as higher grades are usually mined first, and lower grades are left for later. We estimate the average grade of copper mines has declined by around 40% since 1991. This is partly explained by processing advances, such as SxEw, which have improved the economics of lower-grade deposits and brought them into production. Declining grades also means that more ore needs to be mined, processed and transported to produce the same amount of copper. Without technological advancements, grade decline is likely to further increase production costs on a unit of output basis.
This trend may also increase potential environmental and social impacts, due to increased material movement if throughput is increased to maintain production levels.
We expect between one-third and one-half of global copper supply to face grade decline and ageing challenges over the next decade, which will drive increased unit costs and the requirement for capital reinvestment. While an incredible orebody can make a big difference, many older operations move up the cost curve as they progress through their life cycle. Given the strong demand signals, however, we expect the industry to vigorously pursue options to extend the life of these copper mines.
One way of overcoming these challenges is with technology. We see examples of incremental productivity improvements from AI-enabled insights in processing, the repurposing or reinvigorating of older facilities with latent capacity, and adoption of new technologies to improve leaching. But it will be difficult to see the impact of these technologies becoming widespread until at least the mid-2030s. Research and development of innovative sulphide leaching technologies is continuing and we expect to see test work and pilot projects improve understanding of their potential. This will allow the industry to evaluate their true capital requirements, and address permitting uncertainty. But in our view, adoption of any primary sulphide leaching technologies into existing operations will need to complement existing processing infrastructure in most life extension and brownfield options, and the economic trade-offs remain unclear at an industry level. For it to be a truly disruptive technology longer term (post 2035), we would also need to see significant advances in scalability, but adoption efforts to date suggest that leaching processes will need to be tailored to individual ore bodies.
For current operations with significant resources remaining, brownfield developments will be an attractive response to the challenges outlined above. Based on our project-by-project global review, we expect new brownfield supply to contribute up to 30% of total copper supply by 2035. Today’s pipeline of brownfield projects is healthy, and we see many high-quality options, particularly in Chile.
Brownfield life extensions and expansions benefit from existing infrastructure, facilities, workforce and knowledge, and usually face lower technical risk and uncertainty. However, they are not immune to changing regulatory and community expectations and standards. This can lead to increasing capital intensities, permitting delays and complexities where existing permits do not cover the full life of the project.
Our recent review of global project capital intensities shows a steady increase in brownfield capital intensity since 2010. When we look at the region with the strongest pipeline of brownfield projects – Latin America – average brownfield capital intensities for the projects sampled show a ~65% increase during that period (in 2024 real dollars), and since 2020, they have approached similar levels to greenfield projects.15
Our view is that while this increase has been driven by a number of factors, including higher costs for and availability of inputs (e.g. material and labour cost increases, supply chain constraints, skilled labour shortages, and Covid-19 effects), a major factor is that copper producers are, in general, simply building ‘better’ mines (e.g. incorporating newer technologies and addressing higher standards for health, safety and environmental performance).
Despite these cost challenges, we expect high-quality brownfield projects to be prized in the industry in the face of growing copper demand. While their historic cost advantages over greenfield projects are less guaranteed today than in the past, the experience, technical capability developed through years of production and detailed ore body knowledge remain as major advantages, particularly when it comes to more complex projects.
Greenfield projects continue to attract significant excitement and interest from developers and investors. They can avoid the challenges of aging facilities and grade decline and can unlock large and higher-grade copper deposits, develop new frontiers, and allow for the application of technology advances without the challenge of retrofitting.
But they also have potentially even greater challenges to brownfield developments, such as long lead times with environmental and social concerns needing to be navigated for the first time, and uncertainties associated with new jurisdictions or regions. And not all problems can be solved with money. For some projects, it is not a question of investability, but of executability.
The current pipeline of ‘all possible’ greenfield deposits are generally at the higher-difficulty end of the spectrum – and many are experiencing delays. When we investigated a selection of today’s 30 largest (by expected production volume) undeveloped greenfield projects, we found that analysts (ourselves included) had continually moved the forecast supply stack out in time. We expect these projects to contribute around 5 Mtpa of copper by 2035, or 14% of total possible supply.
Start dates for more than 20 of these projects have shown a consistent pattern of delay since 2014, and all have been delayed in forecasts made from 2020 onwards. In 2014, the majority of these projects were forecast to be in operation by now. Given this trend, we now apply a risking adjustment to these projects, which removes between 0.5 to 1 Mtpa from our copper production forecast from 2030 onwards.
Those that have managed to eventually come online have still seen significant challenges on the journey. Copper mega projects (i.e. those with a capital cost more than US$5 billion) have experienced significant delays and cost overruns (e.g. QB2 and Oyu Tolgoi).
African greenfield projects, backed largely by Chinese investment, have been the exception to this global trend, delivering a 90% increase in copper production over the last decade at highly competitive capital intensities and execution rates. African deposits also make up eight out of the 10 highest grade deposits discovered since 1990. But in contrast to the porphyry-style deposits common in Latin America, in which mineralisation decreases gradually, African deposits tend to be ‘sediment hosted’, meaning mineralisation is more concentrated with sharp boundaries. This difference drives a more pronounced depletion in our African forecast. However, given recent trends in both discovery and development, we have revised upward our forecasts of expected volumes from the African region, including volumes related to projects or deposits that might, in other regions, be considered immature or insufficiently progressed to include in the forecast.
Despite the potential contribution from African copper, on balance, new greenfield supply globally will struggle to enter the market quickly and cheaply. This is exacerbated by a slowing rate of discoveries and the relatively long average time from discovery to production (17 years in 2023), which is making it less likely that greenfield developments will be able to respond to the strong demand signals.
According to S&P Global Market Intelligence’s most recent annual copper discovery report, there were:
…239 copper deposits discovered between 1990 and 2023… we have recorded only four discoveries from the past five years (2019–2023), totalling 4.2 Mt of copper… Discoveries from the past decade account for just 14 of the 239 deposits included in the analysis.16
Capital availability is the other hurdle for copper developers. While challenging to model, given the project-specific nature, we estimate the total bill for all expansion capex from 2025-2034 to be around a quarter of a trillion US dollars (in 2024 real dollars). This represents a significant increase from the previous 10 years, where the total spend on copper projects was approximately US$150 billion.
In the 1990s and 2000s we saw the impact of Japanese and western investments into copper around the globe, and we have seen significant Chinese investment into African copper projects in the past decade. Political support has often accompanied such investments (in various forms), and sovereign interest in copper from other regions is growing, most notably from the Middle East and with renewed interest from the United States. Given copper’s essential role in economic growth, the energy transition and digital transformation, we would expect sovereign interest and investment to continue to play a role in future copper projects.
Taking all of these supply factors into account, we expect currently operating mines will need to work harder for longer, and both brownfield and greenfield projects will face cost and schedule headwinds, arising from skilled labour shortages, project complexity and higher ESG standards. Companies that can best navigate and adapt to these challenges, are experienced in managing more complex projects, and have solid social value credentials and a strong balance sheet will win.
The copper price is driven by many factors, such as economic growth, investor sentiment, industrial activity, inventory levels, production costs, exchange rates, interest rates and geopolitical events. In the short term, the price is sensitive to changes in demand and supply, as well as to market sentiment and speculation, which can create price spikes or slumps.17
However, in the long term, the copper price is more determined by the fundamental supply and demand trends and drivers of the market, such as those we have set out in this blog. To narrow in on potential long-term pricing ranges, we prefer the long-run marginal cost (LRMC)-based inducement model, which seeks to identify the marginal unit of supply that will meet demand in the future, and what it will cost. It assumes new supply will be induced by a price signal that provides a sufficient return for the project. It uses a queue of projects that are ranked by their competitiveness and brings them on until future demand is met. It is the most reliable and consistent method for projecting the trend price of copper over long time periods, based on the fundamentals of demand and supply.18
The bullish drivers of demand (balanced by the forces of scrap, substitution and thrifting) present a huge task for copper miners. There is a shortage of ‘easy’ projects to replace existing supply and meet this growing copper demand. The projects that are available face new and increasing challenges that we believe will be reflected in their costs, and consequently, in the price required to incentivise their development. We think the price setting marginal tonne will come from either a lower-grade brownfield expansion in a mature jurisdiction, or a higher-grade greenfield in a higher risk and/or emerging jurisdiction. None of these sources of metal is likely to come cheaply, easily, or unfortunately— promptly.
The chart below summarises the flow of copper units from mine through end-of-life capital stock.
This article contains forward–looking statements, which involve risks and uncertainties. Forward-looking statements include all statements other than statements of historical or present facts, including: statements regarding: trends in commodity prices and currency exchange rates; demand for commodities; global market conditions; guidance; reserves and resources and production forecasts; expectations, plans, strategies and objectives of management; our expectations, commitments, targets, goals and objectives with respect to social value or sustainability; climate scenarios; approval of certain projects and consummation of certain transactions; closure, divestment, acquisition or integration of certain assets, operations or facilities (including associated costs or benefits); anticipated production or construction commencement dates; capital expenditure or costs and scheduling; operating costs, and supply of materials and skilled employees; anticipated productive lives of projects, mines and facilities; the availability, implementation and adoption of new technologies; provisions and contingent liabilities; and tax, legal and other regulatory developments.
Forward–looking statements may be identified by the use of terminology, including, but not limited to, ‘intend’, ‘aim’, ‘ambition’, ‘aspiration’, ‘goal’, ‘target’, ‘prospect’, ‘project’, ‘plan’, ‘pathway’, ‘objective’, ‘see’, ‘anticipate’, ‘estimate’, ‘believe’, ‘expect’, ‘commit’, ‘ensure’, ‘may’, ‘should’, ‘intend’, ‘need’, ‘must’, ‘will’, ‘would’, ‘continue’, ‘forecast’, ‘guidance’, ‘outlook’, ‘trend’ or similar words.
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Additionally, forward–looking statements in this article do not represent guarantees or predictions of future financial or operational performance, and involve known and unknown risks, uncertainties, and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this article.
There are inherent limitations with scenario analysis, and it is difficult to predict which, if any, of the scenarios might eventuate. Scenarios do not constitute definitive outcomes for us. Scenario analysis relies on assumptions that may or may not be, or prove to be, correct and may or may not eventuate, and scenarios may be impacted by additional factors to the assumptions disclosed.
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The views expressed in this article contain information that has been derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness, or reliability of the information. This article should not be relied upon as a recommendation or forecast by BHP.
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1 Data and events referenced in this article are current as of September 2024.
2 Some aggressive decarbonisation scenarios come in 10 to 15 percentage points higher in terms of end-use electrification than we are assuming in the base case. For a full list of deep decarbonisation scenarios that we track, see BHP’s Climate Transition Action Plan 2024 Additional information (page 62).
3 Forecast developed prior to the recent slowdown in EV adoption (ex-China). While the pace of adoption of EVs may underwhelm in the short term, the rationale for electrified transport remains compelling in the long run.
4 Offshore wind requires around 11 tonnes of copper per megawatt, or over 5 times as much as gas-fired power which uses around 2 tonnes per megawatt. Onshore wind and solar are also more copper-intensive, at around 1.7 and 1.4 times, respectively. In addition, the capacity factors of wind and solar power are generally lower than fossil power, which means you need to install more renewable power capacity to generate the same amount of electricity.
5 We estimate copper use in data centres (including those used for cryptocurrency and AI) to be around half a million tonnes of copper today, rising to around three million tonnes in 2050.
6 Note that Copper in power grids is counted under Traditional in the above splits.
7 Ratio of monthly average of LME Cash Settlement Price for Copper and Aluminium.
8 Global average CO2 footprint (CRU, 2021). Copper: ~4t CO2/t metal. Aluminium: ~13t CO2/t metal.
9 For more detail on the volumes of flows in the copper value chain, see the appendix
10 Please see the appendix for details of the copper cycle.
11 Examples of policies that, while potentially positive in the long run, we believe have hindered/are hindering scrap use in the short term: China’s Operation National Sword and recent review of tax and rebates (‘Fair Competition Review’), EU’s Regulation on Waste Shipments and Critical Raw Materials Act.
12 This assumption is underpinned by EV battery recycling targets, but also requires broader improvement in collection/recovery rates across end uses. This will necessitate changes in consumer behaviour (many consumer goods end up in landfill), as well as improvements in scrap processing and metal recovery. Recycling in many cases is labour and/or opex intensive. Current recycling rates are arguably a reflection of what is economic at current prices, so ‘carrot and stick’ policies will likely be required to alter behaviour and lift these rates.
13 The 10 Mtpa requirement considers: growth in primary copper demand, as well as reductions in current mine supply due to grade decline and resource depletion, and additional consideration for supply disruptions and metallurgical losses. The figure also includes mine life extensions for some currently operating mines.
14 This assumes mine life extensions and probable brownfield projects.
15 Wood Mackenzie; Q2 2024. Data set adjusted by companies reports and BHP analysis, inclusive of sanctioned projects >50 ktpa copper equivalent.
16 https://www.spglobal.com/marketintelligence/en/news-insights/research/new-major-copper-discoveries-sparse-amid-shift-away-from-early-stage-exploration
17 Refer to our 2024 Economic and Commodity Outlook for more details.
18 We recognise that LRMC has some limitations, such as being less helpful for the short and medium term, as it does not capture the cyclical and structural factors that can affect the price. This method is also sensitive to the exogenous assumptions that are imposed, such as the macroeconomic and financial variables, the return thresholds for projects, and the discrete decisions on project inducement. We also recognise that this method does not account for the possibility of price disconnecting from the cost curve, due to extreme tightness or scarcity in the market. Therefore, we also use other methods and models, such as cost-plus, historical average, substitution, probabilistic, and econometric, to complement and cross-check our price forecasts, and to generate alternative price scenarios and ranges to reflect the uncertainty and variability of the market.
Later in the Tuesday session, the RCM/TIPP Economic Optimism Index could impact US dollar demand. Economists predict the Index will increase from 46.1 in September to 47.2 in October. A higher-than-expected reading could bolster expectations of a resilient US economy, reducing bets on a recession.
Stronger consumer sentiment toward the US economy could lead to increased consumer spending. Upward trends in consumer spending may push consumer prices higher, possibly dampening bets on multiple Q4 2024 Fed rate cuts.
Better-than-expected data may signal a USD/JPY move closer to 150.
Additionally, FOMC member speeches could also move the dial. Investors should consider reactions to the latest US US Jobs Report and forward guidance on monetary policy.
USD/JPY trends will likely hinge on Japan’s data, including today’s stats, producer prices (Thurs), the Reuters Tankan Index (Fri), and BoJ commentary. Better-than-expected figures could reignite bets on a Q4 2024 BoJ rate hike. However, the upcoming US CPI Report is crucial. Softer-than-expected US inflation may renew bets on aggressive Fed rate cuts, possibly sending the USD/JPY toward 147.5.
Traders should stay vigilant as monetary policy chatter and Japan’s economic data will impact trading USD/JPY strategies. Monitor real-time data, central bank views, and expert commentary to adjust your trading strategies accordingly. Stay ahead of the market with our expert insights.
The USD/JPY remains above the 50-day EMA while hovering below the 200-day EMA, affirming bullish near-term but bearish longer-term price signals.
A USD/JPY breakout from the 148.529 resistance level would support a move toward the 200-day EMA. Furthermore, a break above the 200-day EMA could give the bulls a run at 150.
Japan’s household spending, wages, and central bank commentary require consideration.
Conversely, a drop below the 147.500 level could give the bears a run at the 50-day EMA and the 145.891 support level.
The 14-day RSI at 62.08 indicates a USD/JPY move to the 200-day EMA before entering overbought territory.
Currently, financial markets are having their doubts as the Bureau of Labor Statistics’ expectations gauge shows that investors now see only a 5% chance of a 50-basis point cut in November. Overall, softening expectations for cuts, in turn, boosts US bond yields and the dollar.
The US jobs data comes a day after Bank of England Governor Andrew Bailey indicated that the central bank could now accelerate the pace of interest rate cuts. We noted that his shift came despite the scarcity of data supporting it. Instead, it seemed as if the governor saw the Federal Reserve’s 50-basis point cut in September and the recent hint from the European Central Bank to cut interest rates for the second time in October as providing the necessary cover to accelerate interest rate cuts. Overall, this US data and subsequent market developments expose the cover of Bank of England Governor Bailey.
The Bank of England will have to continue raising interest rates at a quarterly pace, even if its governor wants to speed up the process. A day after Bank of England Governor Andrew Bailey signalled that he wants to speed up the pace of the central bank’s rate cuts, the US economy has reacted strongly. The US economy added 254,000 nonfarm jobs in September, beating expectations of 147,000, and dashing expectations of another 50-basis point rate cut by the Federal Reserve in November.
This 50-basis point cut is considered important for the Bank of England and other global central banks that are looking for cover from the Federal Reserve to cut their own interest rates. Commenting on this, Karl Schamotta, chief market analyst at Corpay, said: “The ‘no landing’ scenario for the United States has suddenly become more likely, suggesting that expectations of aggressive monetary easing in most major economies should be scaled back.”
The US jobs data comes a day after Bailey signalled that the bank could step up the pace of rate cuts, saying the bank could be more “active” on the matter. The shift came despite a lack of fresh economic data that would prompt such a comment. Instead, it appeared that the governor saw the Fed’s 50 basis point cut in September and the recent signal from the European Central Bank that it would accelerate cuts as providing cover for a change of tactic.
Earlier on Friday, the Bank of England’s chief economist said he thought it was prudent for the bank to proceed with caution. Bell said he remained “concerned about the possibility of structural changes that support more sustained inflationary pressures” in the UK economy. Speaking to accountants at the Institute of Chartered Accountants in England and Wales, Bell said his latest economic modelling told him there were “reasons for caution in assessing the dissipation of persistent inflation”. He added, “further cuts in bank interest rates remain possible if the economic and inflationary outlook evolves broadly as expected”, but that “it will be important to guard against the risk of interest rates being cut either too much or too quickly”. he concluded, “For me, the need for such caution suggests a gradual withdrawal of the constraints on monetary policy,”
According to the performance on the daily chart, there is a real break in the direction of the GBP/USD price and the bearish shift will be strengthened if prices move towards the support levels of 1.3090 and 1.2980 respectively. Technically, breaking the psychological support of 1.30 is possible if the US inflation figures this week come stronger than all expectations, as happened with the US jobs figures last week. Thus, the recent performance confirms the strength of our recommendations to sell the GBP/USD from every upward level. Currently, the closest resistance levels are 1.3230 and 1.3300 respectively.
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Silver price (XAG/USD) extends its downside below $32.00 in Monday’s European session. The white metal weakens as the US bond yields rise further, given that the likelihood of the Federal Reserve (Fed) delivering another larger-than-usual 50 basis points (bps) interest rate cut in November has gone off the table.
10-year US Treasury yields jump slightly above 4%. Higher yields on interest-bearing assets reduce the opportunity cost of holding an investment in non-yielding assets, such as Silver. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, clings to gains near 102.50.
However, the Silver is unlikely to turn extremely bearish amid growing tensions between Iran and Israel. Historically, geopolitical tensions improve demand for precious metals as a safe haven.
Market speculation for Fed large rate cuts waned after the United States (US) employment report for September showed strong labor demand and robust wage growth. Traders are pricing a Fed 25 bps interest rate cut in November, according to the CME FedWatch tool.
Upbeat labor market data has diminished fears of an economic slowdown, which forced traders to be bet for a second consecutive 50 bps interest rate cut in September.
Going forward, the next move in the Silver price will be influenced by the US Consumer Price Index (CPI) data for September, which will be published on Thursday. Economists expect the core CPI – which excludes volatile food and energy prices – to have grown steadily by 3.2%.
Silver price continues to face pressure near the horizontal resistance plotted from the May 20 high of $32.50 on a daily timeframe. The white metal strives for more upside as the outlook is upbeat due to upward-sloping 20 and 50-day Exponential Moving Averages (EMAs), which trade around $31.00 and $30.00, respectively.
The 14-day Relative Strength Index (RSI) remains in the bullish range of 60.00-80.00, suggesting more upside ahead.
Silver is a precious metal highly traded among investors. It has been historically used as a store of value and a medium of exchange. Although less popular than Gold, traders may turn to Silver to diversify their investment portfolio, for its intrinsic value or as a potential hedge during high-inflation periods. Investors can buy physical Silver, in coins or in bars, or trade it through vehicles such as Exchange Traded Funds, which track its price on international markets.
Silver prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can make Silver price escalate due to its safe-haven status, although to a lesser extent than Gold’s. As a yieldless asset, Silver tends to rise with lower interest rates. Its moves also depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAG/USD). A strong Dollar tends to keep the price of Silver at bay, whereas a weaker Dollar is likely to propel prices up. Other factors such as investment demand, mining supply – Silver is much more abundant than Gold – and recycling rates can also affect prices.
Silver is widely used in industry, particularly in sectors such as electronics or solar energy, as it has one of the highest electric conductivity of all metals – more than Copper and Gold. A surge in demand can increase prices, while a decline tends to lower them. Dynamics in the US, Chinese and Indian economies can also contribute to price swings: for the US and particularly China, their big industrial sectors use Silver in various processes; in India, consumers’ demand for the precious metal for jewellery also plays a key role in setting prices.
Silver prices tend to follow Gold’s moves. When Gold prices rise, Silver typically follows suit, as their status as safe-haven assets is similar. The Gold/Silver ratio, which shows the number of ounces of Silver needed to equal the value of one ounce of Gold, may help to determine the relative valuation between both metals. Some investors may consider a high ratio as an indicator that Silver is undervalued, or Gold is overvalued. On the contrary, a low ratio might suggest that Gold is undervalued relative to Silver.
STORY LINK Pound to Euro Forecast for Week Ahead: 1.20 Fades, Where Next?
Credit Agricole remains comfortable with an end-2025 Pound to Euro (GBP/EUR) exchange rate forecast of 1.2050.
MUFG expects a retreat to 1.1765 by the third quarter of next year.
GBP/EUR posted sharp losses to 2-week lows near 1.1850 before a recovery to near 1.1950.
The Pound was undermined by dovish comments from Bank of England Governor Bailey during the week, although this was partially reversed after commentary from chief economist Pill.
Bailey stated that if the news on inflation continued to be good there was a chance of the Bank becoming more “a bit more activist” in its approach to cutting interest rates.
Pill was significantly more cautious “While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast.”
Rabobank; “the perception that the BoE may cut interest rates more cautiously than the Fed and potentially the ECB have been a source of support for the pound. This view has been deeply shaken by comments made by BoE Governor Bailey in an interview with the Guardian newspaper.”
Markets are very confident that rates will be cut in November and potentially December.
Strong expectations of an October ECB rate cut limited any potential Pound selling.
Credit Agricole commented; “The EUR could remain vulnerable to any potential data disappointments in the near term as well as evidence that there is a growing number of Governing Council members that support a policy rate cut in October.”
MUFG has shifted its stance on UK rates; “As global inflation continues to fall and as the economy slows after the strong first half of the year, the BoE’s confidence in bringing inflation back to target over the medium-term will rise. We expect that to open up the scope for a faster pace of easing and we now expect back-to-back rate cuts in November and December.”
Markets are also continuing to debate the impact of fiscal policy.
According to Bank of America; “Overall, we think the October budget is likely to be net growth positive relative to March. Fiscal policy is still likely to be in consolidation mode, but the extent of tightening should be lower.”
It added; “Less fiscal tightening adds to the case for a cautious rate-cutting cycle from the BoE.”
Credit Agricole expects growth dynamics will be crucial; “of key importance for the market participants would be any indications that the restrictive BoE policy stance together with the looming fiscal austerity planned by the Labour government have ground the nascent economic recovery to a halt in Q3.”
The headline Euro-Zone inflation rate declined to 1.8% for September from 2.2% previously, increasing confidence that inflation pressures are subsiding rapidly. With a series of weak Euro-Zone data releases, markets were increasingly confident that the ECB would cut interest rates again at the October policy meeting.
HSBC added; “The fact that much of the weakness lies in the core economies of the Eurozone is perhaps of even greater concern.
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Spot Gold’s consolidative phase continued throughout the first half of Monday after the noisy United States (US) Nonfarm Payrolls (NFP) report released last Friday. XAU/USD found near-term demand at the beginning of the week as Middle East tensions undermined the market’s mood. Nevertheless, the bright metal turned south early in the American session, as the US Dollar benefits from solid US data supporting the case for a slow pace of interest rate cuts.
The Federal Reserve (Fed) kick-started its monetary loosening cycle with a 50 basis points (bps) interest rate cut in September, prompting bets of similar moves coming in the near term. However, stronger-than-anticipated employment-related data cooled such concerns. The US Dollar recovered its poise and lost its bearish way, as investors no longer fear a recession, not even a soft landing in the foreseeable future.
The macroeconomic calendar had nothing relevant to offer at the beginning of the week, but it will feature the US Consumer Price Index (CPI) and the Federal Open Market Committee (FOMC) Meeting Minutes. Inflation has cooled enough to push the Fed into monetary loosening, and unless the figures bring an unexpected surprise, the US central bank is expected to keep tightening at a slow yet constant pace. As for FOMC Minutes, the document will likely have a limited impact on financial markets, as all has been said and done in the September Fed’s announcement and the Summary of Economic Projections (SEP) released alongside.
The daily chart for XAU/USD shows the pair is pressuring the base of a near-term wedge but holding within the figure. The pair is also developing above all its moving averages, with the 20 Simple Moving Average (SMA) heading firmly north at around $2,616. The 100 and 200 SMAs maintain their bullish slopes, yet roughly $200 below the shorter one. Finally, the Momentum indicator turned flat within positive levels, while the Relative Strength Index (RSI) indicator aims lower at around 63, correcting overbought conditions and far from supporting another leg south.
The near-term picture is neutral-to-bearish, although a slide below the $2,638 region is required to confirm a continued slide. A mildly bearish 20 SMA provides intraday resistance at around $2,652, while technical indicators develop within negative levels, although lacking clear directional strength. On a positive note, the 100 and 200 SMAs maintain their upward slopes below the current level, suggesting buyers have paused but not yet given up.
Support levels: 2,638.10 2,624.50 2,616.00
Resistance levels: 2,652.10 2,663.00 2,673.20