Higher Swing Low is Bullish

Following today’s pullback natural gas should be ready to proceed higher. Monday’s low of 2.10 created a higher swing low relative to the early-August low of 1.88. It was the first pullback following a bullish reversal off the 2.10 bottom. In other words, it looks like an uptrend is still in its beginning stages to provide plenty of potential upside. The 20-Day line at 2.10 remains critical near-term support for the uptrend and provides the C point for a rising ABCD pattern.

Today’s weakness should be resolved to the upside given recent signs of strength in the price of natural gas including, breakout of falling wedge three weeks ago, rally above 20-Day MA followed by successful test of the line as support, and the advance above the interim swing high of 2.39 last week. Together, these indications show a strengthening trend.

Bullish Signal Above 2.25, Then 2.30

A rally above today’s high of 2.25 will be a sign of strengthening that should be followed by a breakout above last week’s high of 2.30. Once that triggers the 200-Day MA at 2.32 becomes a target. However, notice that the 200-Day line has been slowly declining recently towards the 2.30 peak, putting it very close to last week’s high. Therefore, using the 200-Day line as a breakout level may provide greater confidence that a breakout would be followed by rising prices.

Above the 200-Day MA is the 50-Day MA at 2.36. It is confirmed by the 38.2% Fibonacci retracement at 2.36. If natural gas can rise above there it will likely look to complete an initial target for a rising ABCD pattern with the C leg beginning from the most recent swing low at support of the 20-Day MA.

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

Mixed Demand Outlook and Lower Output Influence Prices

Early Tuesday trading saw natural gas futures rise by a few cents as traders weighed mixed signals from the latest weather forecasts and production data. The outlook from NatGasWeather indicated moderate national demand through Friday, with stronger demand expected over the weekend due to a hotter-than-normal pattern across much of the U.S. This contrasts with milder conditions in the North and East, which are likely to temper overall demand.

Despite these forecasts, the natural gas market is grappling with an oversupply issue that continues to depress prices. Major producers, including EQT and Coterra Energy, have begun to scale back production, delaying new drilling projects and well connections to pipelines. These cutbacks are a response to persistently low prices, which have rarely been this depressed during peak summer demand.

Production Declines Amid Storage Concerns

Natural gas production in the lower 48 states has declined after peaking in July, with recent figures showing output at approximately 101 billion cubic feet per day (bcf/d), down from over 103 bcf/d last month. UBS analysts attribute the recent price decay to storage congestion risks, which have escalated as production surged in July. The market saw additional pressure from a temporary reduction in liquefied natural gas (LNG) exports due to Hurricane Beryl, though exports have since recovered.

Market Forecast: Cautious Optimism for 2025

Looking ahead, UBS analysts maintain a cautiously optimistic outlook for natural gas prices in 2025, assuming normal winter conditions. However, they warn that a milder-than-expected winter could dampen the anticipated price recovery. The expected increase in LNG export capacity from terminals like Plaquemines and Corpus Christi is likely to support stronger demand and potentially tighter market balances in the coming years.

Overall, while short-term conditions suggest continued volatility, the market may see a more sustained recovery as export capacity expands and production aligns with demand.

Technical Analysis

XAU/USD Current price: $2,507.75

• The market’s optimism faded in the American session, with the FOMC Minutes around the corner.
• China among the major gold buyers amid speculation the USD will weaken further.
• XAU/USD could extend its corrective decline but is still far from bearish.

Gold kept rallying throughout the first half of Tuesday, hitting an all-time high of $2,531.60 amid persistent US Dollar’s weakness and persistent demand for the safe-haven metal, particularly coming from Asia. Mounting expectations that the Federal Reserve (Fed) will trim interest rates, translating into further USD weakness, is pushing Chinese authorities and individual investors into Gold. The bright metal, however, changed course with Wall Street’s opening, and profit-taking is pushing XAU/USD towards the $2,500 mark.

Meanwhile, the positive tone of equities faded ahead of the European close, and most local indexes closed in the red. US indexes followed the negative lead and trade with modest losses, although not far from record highs. Overall, the sentiment remains upbeat, and the US Dollar is on the back foot despite XAU/USD intraday slump.

The focus on Wednesday will be on the Federal Open Market Committee (FOMC) Minutes. The document, usually released three weeks after the meeting, usually provides additional clues on policymakers’ thinking and upcoming decisions. Still, there’s a good chance the document will fall short of expectations and barely impact the USD, given that policymakers have shifted towards a more dovish tone since then. Market participants are pretty much convinced the Fed will trim rates in September, and the Minutes have no chance to change such belief.

XAU/USD short-term technical outlook  

The daily chart for the XAU/USD pair shows the pair has room to extend its gains, with the recent pullback from record highs seen as corrective. The pair keeps developing well above all its moving averages, which maintain bullish slopes. The Momentum indicator, however, retreated from its recent peak and heads firmly south within positive levels. Finally, the Relative Strength Index (RSI) indicator consolidates around 65. A steeper decline seems unlikely in this scenario.

The 4-hour chart suggests the ongoing retracement is far from confirming additional declines. Technical indicators have retreated sharply but hold well above their midlines. At the same time, moving averages maintain their upward slopes, with the 20 Simple Moving Average (SMA) currently at around $2,492.70 and the 100 SMA aiming higher at around$2,439.60.

Support levels: 2,496.40 2,485.10 2,427.20

Resistance levels: 2,510.00 2,523.50 2,535.00

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• Natural gas looks as if it is continuing to try to fight, perhaps finding enough support to turn things around and rally again.
• The early hours on Monday certainly have been very strong as we continue to hang around the $2.30 level overall, but I also recognize that we have a lot of technical resistance just above, and of course natural gas is always a bit slippery when it comes to trying to get your hands around it.

Technical Analysis

It’s important to notice that the last couple of candlesticks have produced shooting stars on the daily chart, so that does suggest that we have a lot of selling pressure above. This isn’t to say that the market can’t go higher, it’s just that there is obviously a lot of volatility and fighting going on at the moment. With that being the case, I think you got a situation where you have to pay close attention to the $2.40 level, which is also where we have the 200-Day EMA. The 200-Day EMA of course is a major indicator that a lot of technical traders will pay close attention to, and with that being the case it makes a certain amount of sense that we will continue to react to it.

However, if we were to break above the 200-Day EMA, it opens up the possibility of a move to the $2.50 level. The $2.50 level courses a large, round, psychologically significant figure, and is an area that a lot of people will be paying attention to as well. That being said, think you have got a situation where the market will be very noisy, and therefore I think you need to be cautious about your position size. Short-term pullbacks make a lot of sense, especially to the $2.25 level.

As for myself, I am bullish of this market over the longer-term, but I think of that as an investment, not a short-term trade. In other words, I am buying ETF positions so that I can avoid the leverage. If you do not have that ability, you can buy small CFD positions, but you need to understand that this is a cyclical trade, which means we will rise in price as people start to focus on cooler temperatures in the United States. This is something that happens every year, but quite frankly it’s hard to times so I just put a small portion of my portfolio in this market in mid to late summer and simply click prices after the first major spike.

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After having dropped from their record high of $11,105 a tonne in May, copper prices are likely to gain on the US Fed cutting interest rates in the third quarter of 2024. Demand for the red metal in critical applications such as electric vehicles (EVs), wind power, and solar energy will also aid the uptrend, say analysts.  

“Copper prices have been on a steady upward trend since the start of the year, barring the month of June, with a historic high of $11,105/tonne reached on May 20, 2024. A number of idiosyncratic issues worked to boost copper in H1 2024,” said research agency BMI, a unit of Fitch Solutions.

Pessimism over the Chinese economy and a weak US dollar pulled copper down in June to $9,515, said BMI. However, since then copper has been able to make headway to $9,944 on July 5. Currently, the red metal is quoted at $9,905 for the three-month contract on the London Metal Exchange, while the cash price is $9,696. 

Supply concerns

The Australian Office of the Chief Economist (AOCE) said copper prices have continued to trend higher in recent months, averaging about $9,700 a tonne in the June quarter — up 14 per cent since the start of the year. “The surge in prices reflects strong growth in global demand, which is expected to largely persist over H2 2024,” it said. 

The World Bank, in its Commodity Outlook, said copper prices have reached a two-year peak in the first quarter, reflecting supply concerns and signs of firmer global industrial production.  

According to ING Think, the financial and economic analysis wing of Dutch multinational financial services firm ING, the latest commitment of traders report shows that investors boosted net bullish positions for copper by 9,156 lots for a second consecutive week to 85,601 lots for the week ending  July 5, the highest net long since May 31, 2024.

A major reason for copper regaining and analysts expecting prices to rebound is the four-day plenum of the Chinese Communist Party (CCP) scheduled to be held from July 15. 

Focus on reforms

BMI said prices have regained some lost ground in July on the back of hopes of stimulus announcements during the third plenum of China, as well as increasing market participants expecting a rate cut by the US Fed sooner rather than later in light of fresh economic data supporting a cut.

Saish Sandeep Sawant Dessai, Analyst at Angel One, said the market is keenly awaiting the CCP’s third plenum, which is expected to focus on economic policy and reforms. It is also looking out for upcoming data on China’s yuan loans and total social financing, which could provide insights into future demand. . 

The World Bank said global demand for copper — a key input for construction and equipment manufacturing — is likely to increase only modestly this year, reflecting subdued global GDP growth and the protracted challenges in China’s real estate sector. 

“Nonetheless, the steady increase in the demand for copper, driven by energy transition technologies—particularly electricity grid infrastructure, EVs, and solar panels — is set to continue,” it said. 

Demand growth

BMI said expectations of a rate cut by the US Fed, which led to a weakening of the US dollar compared to the highs of 2022 and 2023, worked to boost demand for copper priced in the greenback. 

“Second, high-frequency indicators of global growth, especially US growth, continued to surprise to the upside, building positive sentiment towards copper demand. Third, Chinese manufacturing PMI figures showed a mild recovery in March and April, boosting speculative holdings. Fourth, major Chinese copper smelters announced production cuts in March,” it said.

The AOCE said China and the US will account for the bulk of this growth, driven by rising manufacturing activity and large investment in energy infrastructure. 

BMI said it expect Chinese copper demand to grow by 3.5 per cent year-on-year (y-o-y) in 2024 compared to a 5 per cent rise in 2023 as China’s construction sector, critical for metal prices, remains in the doldrums. 

“Our Country Risk team believes that China’s housing downturn is likely to last years, driven by an oversupply amid waning speculative demand,” it said. Outside of China, the growth outlook is subdued. 

Market deficit

On the supply side, the copper market to tip into deficit in 2024, resulting from a slowdown in refined copper production growth due to copper concentrate supply constraints, leaving the market tight. “We expect refined copper production to grow by 3.1 per cent yoy in 2024, compared with 6.5 per cent growth in 2023,” the research agency said..

Global copper mine output in 2024 will be driven by increased production from new mining projects along with a rebound in output in countries that faced operational challenges in 2023. “We expect First Quantum’s Cobre Panama mine closure in Panama to pose downside risks to our global copper mine outlook in 2024, while the production starts at the Udokan project in Russia as well as expansion at the Kamoa-Kakula mine in the DRC and Quebrada Blanca in Chile could shift the balance of risks to the upside,” it said. 

The World Bank said copper supply growth is expected to be modest this year, limited by production stoppages and declining ore grades in major producers in South America, before picking up in 2025. It projected a 5 per cent yoy increase in copper prices this year. 

Price forecast

The AOCE said LME copper prices are forecast to average about $9,500 a tonne in 2024 (up from $8,700 in 2023), rising to $9,970 in 2026.  

BMI said, “We are raising our 2024 copper price forecast from $9,200/tonne to $9,600, as prices continue to be led by investor sentiment that is tilted towards a US Fed rate cut in Q3 2024.” 

• Gold price battles $2,500 early Tuesday, as buyers gather pace amid souring risk sentiment.
• The US Dollar struggles with US Treasury bond yields on dovish Fed expectations.
• The focus remains on Wednesday’s FOMC Minutes and Fed Chair Jerome Powell’s speech on Friday.
• Gold price could see dip-buying trading, as the daily RSI stays bullish, with a symmetrical triangle in play.

Gold price is keeping its range play intact at around $2,500 early Tuesday, within striking distance of the all-time highs at $2,510. Traders take a breather and refrain from placing fresh bets on the Gold price ahead of the Minutes of the US Federal Reserve (Fed) July meeting and Chairman Jereme Powell’s speech later this week.

Gold price remains poised for a fresh record high above $2,500

Gold price has entered a phase of upside consolidation, following a rally to a new lifetime high and a 3% gain booked last week. Buyers are looking forward to a fresh and significant catalyst to regain upside traction, even though the US Dollar (USD) continues to remain on a downward spiral alongside the US Treasury bond yields.

The Greenback faced a double whammy on Monday, with heightening expectations surrounding a September Fed interest-rate cut weighing on the US Treasury bond yields on one side. On the other hand, dovish Fed expectations lifted the sentiment on Wall Street, eroding the safe-haven appeal of the USD.

However, Gold price failed to capitalize on reduced US Dollar demand, as fears over a potential Middle-East geopolitical escalation eased after news reported that Israeli Prime Minister Benjamin Netanyahu accepted a “bridging proposal” presented by Washington to tackle disagreements blocking a ceasefire deal in Gaza, per Reuters.

Heading into yet another day of data-sparse US economic calendar on Tuesday, Gold price treads water, with markets digesting the no-rate change action by the People’s Bank of China  (PBOC). Traders turn anxious, awaiting the Fed’s July meeting Minutes and Chair Jerome Powell’s speech at Jackson Hole on Friday for clues on the interest-rate outlook.

Markets are currently fully pricing in a 25 basis points (bps) rate cut by the Fed next month, with the odds of a 50 bps move off the table. The further upside in Gold price could be also capped because of the pricing out of a bigger rate reduction for September.

Ahead of the key Fed events, Gold price will continue to remain at the mercy of risk trends and speeches from Fed policymakers. Fresh developments surrounding the Iran-Israel conflict could also play a pivotal role in the Gold price action.

Gold price technical analysis: Daily chart

Following a symmetrical triangle breakout, risks remain skewed to the upside for Gold price.

The 14-day Relative Strength Index (RSI) points south but holds well above the 50 level, suggesting that any pullback in Gold price could be bought into.

On the upside, should the record high of $2,510 be taken out on a sustained basis, the next relevant topside target is seen at the $2,550 level. Acceptance above the latter could challenge the $2,600 round level en route to the triangle target, measured at $2,660.

However, if the Gold price correction extends, the immediate support is seen at the previous day’s low of $2,486, followed by the triangle resistance-turned-support, now at $2,468.

Further south, the $2,450 psychological barrier will challenge the bullish commitments.

 

XAU/USD Current price: $2,506.95

• The Jackson Hole Symposium will host global policymakers by the end of the week.
• The US Dollar extends its recent slide as the optimistic mood persists on Monday.
• XAU/USD pressures record highs with a near-term bullish stance.

Spot Gold trades near a record high of $2,509.80 achieved at the beginning of the week, helped by sluggish US Dollar demand. XAU/USD barely surpassed its Friday’s high before retreating, but buyers added on dips, helping the bright metal to retain the $2,500 mark. The positive tone of equities maintains the USD subdued as Wall Street extends its recent gains, while the absence of macroeconomic data limits the intraday range.

This week’s focus will be on the Jackson Hole Symposium, hosting policymakers from around the globe. The event will take place over the weekend, with Federal Reserve (Fed) Chairman Jerome Powell speaking on Friday.

Central banks are still the main market driver, with the main focus on the Fed, as the central bank is still to decide on an interest rate cut. Indeed, US policymakers have been paving the way towards such a movement, but with the most cautious stance. Early on Monday, Fed Bank of Minneapolis President Neel Kashkari spoke to the Wall Street Journal and said tha inflation is making progress, although the labor market is showing some concerning signs. “The balance of risks has shifted more towards labor market and away from inflation side of our dual mandate,” Kashkari added.

Ahead of the event, S&P Global will release the preliminary estimates of the August Purchasing Managers Indexes (PMIs).

XAU/USD short-term technical outlook  

The XAU/USD pair pressures its record high, and the daily chart shows it is consolidating its recent gains. An intraday slide met buyers in the $2,385 price zone, which resulted in a quick recovery, suggesting speculative interest is willing to add on dips. Technical indicators in the mentioned time-frame retreated just modestly from near overbought reading, but the pair develops above bullish moving averages, with the 20 Simple Moving Average (SMA) providing dynamic support at around $2,429.00.

In the near term, and according to the 4-hour chart, the risk is skewed to the upside. XAU/USD trades well above all its moving averages, which picked up bullish momentum far below the current level. At the same time, technical indicators resumed their advances after a modest downward correction, reflecting bulls’ dominance.

Support levels: 2,496.40 2,485.10 2,427.20

Resistance levels: 2,510.00 2,523.50 2,535.00

• The downside of the safe-haven Silver price could be limited due to rising geopolitical tensions.
• Hamas rejected the terms for a hostage release-ceasefire deal discussed in Doha on Thursday and Friday.
• Ukraine initiated the largest invasion of Russia since World War II.

Silver price (XAG/USD) price holds minor losses, trading around $29.00 per troy ounce during Monday’s Asian session. However, the downside of the safe-haven Silver could be limited due to rising geopolitical tensions.

On Sunday, conflicting statements from Hamas and Israel dampened the chances of a breakthrough ceasefire deal. Hamas has issued a statement rejecting the terms for a hostage release-ceasefire deal discussed in Doha on Thursday and Friday. The group accuses Prime Minister Benjamin Netanyahu of introducing new obstacles into the negotiations, according to Reuters citing a local news agency Times of Israel.

Israeli Prime Minister Benjamin Netanyahu is scheduled to host US Secretary of State Antony Blinken on Monday. Following their meeting, Blinken will travel to Cairo, where negotiations on a deal are continuing. The US has announced plans to host a second meeting later in the week and aims to finalize the agreement by the end of the week.

Additionally, concerns about escalating tensions between Ukraine and Russia were heightened as Ukraine initiated the largest invasion of Russia since World War II. The ministry released a video showing General Valery Gerasimov, the commander of the Russian military operations, visiting a different combat zone in Ukraine. Gerasimov received reports from commanders and set “tasks for further actions,” according to Reuters.

The prices of non-yielding Silver may advance further due to the likelihood of an interest rate cut by the Federal Reserve (Fed) starting in September increases. Last week’s US economic data indicated that Retail Sales exceeded expectations, while both the Producer Price Index (PPI) and Consumer Price Index (CPI) suggested that inflation is easing.

Federal Reserve Bank of San Francisco President Mary Daly emphasized Sunday that the US central bank should take a gradual approach to reducing borrowing costs, according to the Financial Times. Additionally, Federal Reserve Bank of Chicago President Austan Goolsbee warned that central bank officials should be cautious about keeping a restrictive policy in place longer than necessary.

Natural Gas (NG) futures are trading lower at $2.30, down 0.82% for the day. The 4-hour chart reveals a bearish bias, with prices trading below both the 50-day and 200-day exponential moving averages (EMAs) of $2.18 and $2.38, respectively.

The pivot point at $2.06 is a critical level to watch. A break below this could accelerate the downtrend towards the support levels of $1.98, $1.92, and $1.85. Conversely, a move above $2.06 could signal a potential reversal, with the next resistance levels at $2.13, $2.21, and $2.28.