December arabica coffee (KCZ24) today is down -12.40 (-4.74%), and November ICE robusta coffee (RMX24) is down -208 (-3.96%).

Coffee prices today sold off sharply as forecasts for rain in Brazil have sparked fund liquidation of coffee futures.  The two-week Global Forecast System model shows rain moving into Brazil’s coffee-growing regions next week during the all-important flowering period for Brazil’s coffee trees.

A supportive factor for coffee was Thursday’s action by Conab, Brazil’s crop forecasting agency, to cut its 2024 Brazil coffee production forecast to 54.8 million bags from 58.8 million bags forecast in May.

On Monday, Dec arabica and Nov robusta posted contract highs, while nearest-futures (U24) robusta posted a new all-time high.  Coffee prices have rallied sharply over the past week as adverse global weather events threaten coffee production.  Brazil has been facing the driest weather since 1981, according to the natural disaster monitoring center Cemaden.  Rainfall in Brazil has consistently been below normal since April, damaging coffee trees during the all-important flowering stage and reducing the prospects for Brazil’s 2025/26 arabica coffee crop.  Somar Meteorologia reported Monday that Brazil’s Minas Gerais region received no rain over the past week.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.  Also, robusta coffee has support after heavy rain from typhoon Yagi may have damaged Vietnam’s robusta coffee fields.

Robusta coffee prices are underpinned by fears that excessive dryness in Vietnam will damage coffee crops and curb future global robusta production.  Vietnam’s agriculture department said on March 26 that Vietnam’s coffee production in the 2023/24 crop year dropped by -20% to 1.472 MMT, the smallest crop in four years, due to drought.  The USDA FAS on May 31 projected that Vietnam’s robusta coffee production in the new marketing year of 2024/25 will dip slightly to 27.9 million bags from 28 million bags in the 2023/24 season.  Last Wednesday, the General Department of Vietnam Customs reported that Vietnam’s August coffee exports fell -9.9% y/y to 76,214 MT and that Vietnam’s Jan-Aug coffee exports fell -12.1% y/y to 1.06 MMT.

Last Tuesday, Cecafe reported that Brazil’s Aug green coffee exports rose +1.4% y/y to 3.41 million bags.  The rise in Brazil’s green coffee exports was consistent with other recent news showing higher exports.  The Brazilian Trade Ministry reported on August 7 that Brazil’s July coffee exports rose +44% y/y to 202,000 MT.  Also, Cecafe reported on July 11 that Brazil’s 2023/24 coffee exports rose +33% y/y to a record 47.3 million bags.  On a global basis, the International Coffee Organization (ICO) reported on September 6 that global coffee exports rose +12.2% y/y in July to 11.29 million bags and that global exports during Oct-July rose +10.5% y/y to 115.01 million bags.

A rebound in ICE coffee inventories from historically low levels is negative for prices.  Last Thursday, ICE-monitored arabica coffee inventories rose to a 1-1/2 year high of 858,474 bags, up from the 24-year low of 224,066 bags posted in November 2023.  Also, ICE-monitored robusta coffee inventories on July 25 rose to a 1-year high of 6,521 lots, up from the record low of 1,958 lots posted in February 2024.

In a bearish factor, the International Coffee Organization (ICO) said on May 3 that 2023/24 global coffee production climbed +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year.  ICO also said global 2023/24 coffee consumption rose +2.2% y/y to 177 million bags, resulting in a 1 million bag coffee surplus.

The USDA’s bi-annual report on June 20 was bearish for coffee prices.  The USDA’s Foreign Agriculture Service (FAS) projected that world coffee production in 2024/25 will increase +4.2% y/y to 176.235 million bags, with a +4.4% increase in arabica production to 99.855 million bags and a +3.9% increase in robusta production to 76.38 million bags.  The USDA’s FAS forecasts that 2024/25 ending stocks will climb by +7.7% to 25.78 million bags from 23.93 million bags in 2023/24.  The USDA’s FAS projects that Brazil’s 2024/25 arabica production would climb +7.3% y/y to 48.2 mln bags due to higher yields and increased planted acreage.  The USDA’s FAS also forecasts that 2024/54 coffee production in Colombia, the world’s second-largest arabica producer, will climb +1.6% y/y to 12.4 mln bags. 

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On the date of publication,

Rich Asplund

did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy

here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Higher Target Zones

The next higher target zone runs from 2.52 to 2.54 and includes the 50% retracement and the completion of a rising ABCD, respectively. Given the improvement in bullish momentum this next target zone could be reached quickly. Notice the wide range yesterday with a close near the highs, and a similar one-day dynamic today. Keep an eye on the rise in the 20-Day MA as it is close to crossing above the slower moving 200-Day MA, now at 2.23. That would provide an additional sign that demand is improving.

Further up is a target zone from 2.65 to 2.67. It correlates with an old trendline rising from the April 2023 swing low. The 2.65 price level is the 127.2% extended target for the rising ABCD pattern that is on the chart, and 2.67 is the completion of a 61.8% Fibonacci retracement.

Bull Breakout on Daily, Weekly, and Monthly Charts

Natural gas broke out of a double pattern on a move above 2.30 last Wednesday, and it is now showing signs that it is ready to follow through to the upside. The advance also triggered a breakout on the higher time frame monthly chart. This is significant as all higher time frames (daily, weekly, monthly) are bullish. The next monthly target is 2.60, the peak from July.

For a look at all of today’s economic events, check out our economic calendar.

• Gold price consolidates below record highs at $2,600 early Friday, as Fedsepak awaited.  
• As traders digest the Fed’s big rate cut, the US Dollar licks wounds with Treasury bond yields.
• Gold buyers stay hopeful amid the daily bullish RSI, as $2,600 resistance appears at risk.

Gold price is looking to build on the previous day’s rebound early Friday, consolidating weekly gains amid the overnight weakness in the US Dollar (USD) alongside the US Treasury bond yields. Traders now await the speeches from US Federal Reserve (Fed) monetary policymakers for fresh hints on the central bank’s path forward on interest rates.

Gold price takes a breather, with Fedspeak eyed

The USD has paused its recent downside, as markets turn risk-averse and buck the Wall Street rally after the People’s Bank of China (PBOC) disappointed by leaving the mortgage lending rate unchanged. Markets expected the Chinese central bank to cut the Loan Prime Rates (LPR) amid growing economic slowdown concerns.

A stabilizing US Dollar seems to caution Gold buyers but the downside remains cushioned amid increased haven demand for the traditional safety asset on China worries. They also remain wary and refrain from placing fresh bets, anticipating the Bank of Japan’s (BoJ) policy announcements.

Although the BoJ is widely expected to leave interest rates unchanged, any surprise could trigger the USD/JPY pair-led US Dollar volatility, eventually impacting the USD-denominated Gold price.

That said, Gold price could witness a brief correction, if traders resort to profit-taking due to the recent rally and ahead of next week’s US macro data and Fed Chair Jerome Powell’s appearance.

On Thursday, the bright metal staged a solid rebound toward the all-time high of $2,600 but fell slightly short of it amid the two-way swings seen in the US Dollar, as traders digested the dovish Fed outlook amid the return of risk appetite and mixed US Jobless Claims and Existing Home Sales data.

Gold price technical analysis: Daily chart

As observed on the daily chart, the Gold price outlook appears constructive in the short term as long as the crucial support at $2,532 is defended.

That level is the confluence of the August 20 high and the 21-day Simple Moving Average (SMA).

The 14-day Relative Strength Index (RSI) has turned flat while staying firm above the 50 level, currently near 66.50, adding credence to the bullish potential.

The record high at $2,600 will be challenged if Gold price regains the upside traction. Acceptance above that level will call for a test of the $2,650 psychological barrier.

On the downside, Gold sellers need to crack the $2,550 demand area for the correction to extend toward the abovementioned key support at $2,532.

A sustained break below that level will likely extend the decline toward the rising trendline support at $2,512.

• Silver gains positive traction for the second straight day and stands tall near a two-month high.
• The technical setup favors bullish traders and supports prospects for a further appreciating move.
• Any meaningful corrective decline might still be seen as a buying opportunity and remain limited.

Silver (XAG/USD) attracts buyers for the second straight day on Friday and sticks to its gains above the $31.00 mark, near a two-month peak through the first half of the European session. 

From a technical perspective, the recent breakout through a short-term descending trend-line resistance, around the $29.35 area, which coincided with the 100-day Simple Moving Average (SMA), was seen as a fresh trigger for bullish traders. Adding to this, the emergence of some dip-buying on Thursday, along with positive oscillators on the daily chart, suggest that the path of least resistance for the XAG/USD is to the upside. 

The positive outlook is validated by the fact that the white metal now seems to have found acceptance above the $31.00 mark. Hence, a subsequent move up beyond the $31.45 intermediate hurdle, en route to the July swing high around the $31.75 zone and the $32.00 mark, looks like a distinct possibility. The momentum could extend further and allow the XAG/USD to challenge a one-decade high, around mid-$32.00s touched in May. 

On the flip side, weakness below the $31.00 mark now seems to find decent support near the $30.70 horizontal zone. Any further decline might still be seen as a buying opportunity and remain limited near the $30.00 psychological mark. Some follow-through selling could expose the $29.35 confluence resistance breakpoint, now turned support, which should now act as a strong near-term and a key pivotal point for the commodity.

A convincing break below could accelerate the downfall and drag the XAG/USD below the $29.00 mark, towards testing the next relevant support near the $28.20-$28.15 zone. This is followed by the $28.00 mark and strong horizontal support near the $27.70 area, or the monthly low, which if broken might shift the near-term bias back in favor of bearish traders.

Silver daily chart

XAU/USD Current price: $2,589.77

• The Federal Reserve’s decision to trim interest rates put the US Dollar on a bearish path.
• The Bank of Japan will announce its decision on monetary policy on Friday.
• XAU/USD resumed its advance and aims to extend gains beyond $2,600.

Spot Gold recovered its bullish tone early on Thursday, and traded as high as $2,594.75 a troy ounce, holding on to gains and changing hands at around $2,590 mid-American session. Stock markets reflect the optimism that harms US Dollar’s demand, following the Federal Reserve (Fed) monetary policy announcement. The Fed trimmed interest rates by more than anticipated on Wednesday, kick-starting a new monetary policy cycle with a 50 basis points (bps) cut to the benchmark rate.

Fed officials’ message, however, was not as dovish as expected. As usual, Chairman Jerome Powell maintained a cautious tone, refraining from explaining future action, and repeating the decisions will depend on upcoming data. The US Dollar moved back and forth with the news, but resumed its slump with the Asian opening, as global indexes edged north, welcoming lowering borrowing costs in the world´s largest economy.

Encouraging United States (US) data provided temporal support to the USD ahead of Wall Street’s opening.  The country published  the Q2 Current Account, which posted a deficit of $266.8 billion. Initial Jobless Claims for the week ended September 13 improved to 219K while the Philadelphia Fed Manufacturing Survey printed at 1.7 in September, much better than the previous -7 or the expected -1.

The Bank of Japan (BoJ) will announce its monetary policy decision early on Friday, and market participants anticipate no changes to the monetary policy. Any announcement that diverges from expectations will likely bring volatility back and affect Gold price.

XAU/USD short-term technical outlook  

XAU/USD is on its way to retest its recent highs and even extend its gains, despite the positive market mood, as investors drop the USD. Technical readings in the daily chart support such a scenario, as technical indicators head firmly north well above their midlines. At the same time, all moving averages aim north, with the 20 Simple Moving Average (SMA) providing dynamic support at around $2,527.

The near-term picture is also bullish. In the 4-hour chart, technical indicators have extended their advances within positive levels, although with limited upward strength as the XAU/USD pair develops below its recent peaks. Finally, the 100 and 200 SMAs gain upward traction far below the current level, while a flat 20 SMA attracts intraday buyers in the $2,570 region.

Support levels: 2,574.80 2,561.65 2,550.00  

Resistance levels: 2,605.00 2,620.00 2,640.00

China’s Growing Demand for Silver (XAG/USD) Offers Hope

Short-Term Technical Outlook for Silver (XAG/USD)

Conclusion