Gold, silver, copper: Tracking the damage from the late May metals rout

• It’s been a rough end to May for base and precious metals
• Gold is holding up well, but silver looks suspect
• Copper has been clobbered just like Chinese stocks

It’s been a wild ride for commodities in May with many names who started the month in beast mode ending it with a whimper. Some have broken down technically while others are threatening to do so. Ahead of inflation data from the United States, Eurozone and Japan on Friday, we look at messaging from the charts for gold, silver and copper.

Gold trying to find a base

It’s been a rough end to May for gold, tumbling over the past fortnight after surging to record highs above $2450 on May 20. The warnings on downside risk were plain to see; there was divergence between RSI and price, followed by an evening star pattern. Those risks materialised, sending bullion plunging over $100 per ounce in four sessions.

However, the price action since has been more constructive for bulls with gold attracting buyers on two separate occasions below $2328.50, suggesting the former resistance level is now acting as support. And when the price briefly dipped below the level on Thursday, it was scooped right back up, bouncing from the 50-day moving average.

The proximity of these levels, along with the downtrend in RSI being broken, suggests the risk of downside in the near-term is ebbing. Range trading is therefore favoured heading into June, with dips towards $2328.50 proving an opportunity to establish longs with a stop loss below for protection. Upside targets include $2364, the high set earlier this week, with $2375 the next after that. Should the price get to either, traders can then look to cut, hold or reverse, depending on how the price plays out.

Silver through uptrend support

In contrast to gold, silver looks vulnerable to near-term downside, with an evening start earlier this week seeing the price break through the uptrend it had been in dating back to early May. With RSI trending lower and MACD threatening to crossover from above, it looks heavy after what’s been a remarkable run. Silver comes across as having to go lower to go higher, enticing more bulls to come off the sidelines at more appealing levels.

While silver managed to bounce off minor support at $30.96 on Thursday, selling rallies or breaks is preferred. The constant failures above $32 suggest that’s a decent entry level to get short, allowing for a stop to be placed above the recent highs for protection. $30.96 and $30.08 are two potential trade targets.

Should the price fall through $30.96, you could consider selling the break with a tight stop above the level for protection. The initial trade target would be $30.08.

Copper clobbered but watch Hang Seng

COMEX copper has been the major casualty of the late May metals rout, with sellers parked above $5 finally getting their way after countering wave after wave of suspected short covering. After a dead-cat bounce earlier this week, the selloff resumed on Wednesday, eventually sending copper tumbling through the uptrend it had been in since early April.

While momentum is bearish, the downtrend in RSI is on the cusp of being broken, signaling a potential let-up in selling pressure. The price also managed to bounce off minor support at $4.617 on Thursday, suggesting some willingness to buy the dip.

With no great uplift in volume accompanying the downside break, it’s tempting to dip the toe back in and buy with a stop below $4.617 for protection, especially with Chinese equity futures bouncing strongly overnight. The Hang Seng topped the same day as copper, so I’ll be watching its performance on Friday closely. Potential trade targets include $4.746 and $4.85.

If I’m wrong and the price keeps falling, $4.50 looms as a decent test for bears given the intersection of horizontal support, uptrend dating back to February and 50-day moving average.  

-- Written by David Scutt

Follow David on Twitter @scutty