For a month of ‘heavy metal’, gold hasn’t done too badly

A couple of themes have done their bit to make trading metals a white-knuckle ride in March. Supply concerns which stemmed from the war in Ukraine helped industrial metals rally and, in some cases, hit record highs (for a brief moment). Yet it was the major short squeeze on LME’s nickel market which seemingly popped metal’s bubble and sending copper and palladium sharply lower from their record highs, before gold and silver eventually followed.

Palladium’s most volatile month since the pandemic

To give a better idea of the levels of volatility witnessed these past few weeks, It’s been the most volatile month for palladium since March 2020. And it’s certainly felt the strain of its own weight, having fallen around 40% from this-months high. Platinum has ‘only’ fallen as much as 20% from March’s high but, like palladium, it’s also on track for a bearish engulfing month. Copper also hit a brief record high on the 7^th March before tumbling -11%, but it is now trading just -5.8% from its record high – which is not bad considering the lockdowns in Shanghai. But it is these high levels of volatility which has prompted money managers to run for cover and reduce exposure to such markets during a time of crisis. And that is the perfect environment for volatility and choppy trade.

We cannot say with any certainty that the lows are in for platinum and palladium. But with different macro drivers at play for gold, we think it is likely to outperform these metals over the foreseeable future.

Gold traders seem wary of Russia’s intensions

As nice as the peace talks initially sound, there’s scepticism over Russia’s true intensions. They haven’t been true to their word with humanitarian corridors, and its possible their pledge to scale down their ‘military operations’ around Kyiv is simply a ploy to disperse their troops elsewhere. And that is only half of the equation, as traders are keeping an eye on US inflation data, and the US dollar is pulling back along with yields which are helping to support gold.

 

 

It's a fine line between bullish and bearish for gold in March

Despite the rise in volatility, it is a close call as to whether gold will finish higher or low by tomorrow’s close. Gold spot prices for gold closed around 1908, and the market now trades just 0.8% above that level. So with month and quarter-end flows likely to wreak havoc heading into the weekend, it’s almost a flip of a coin as to whether March will be bullish or bearish for the metal.

Technically, we’re on track for a large bearish pinbar on the monthly chart, and its high stopped just -$5 from its record high. It raises the question as to whether we’re now entering a corrective phase on this timeframes, but a month is a long time for the typical trader, and that still leaves bullish and bearish opportunities on lower timeframes. But if nothing else, a cursory glance at the monthly chart does not harm to remind us of the bigger picture. My gut feel at present is that we’ll see choppy trade over the coming weeks.

Gold is trying to find support around 1900

Menacing monthly candles aside, the weekly chart shows us that the market is trying to form a base around 1900. Despite a high chance of two bearish candles over three weeks being on the horizon, prices have bounced back twice from 1900 and (on the daily chart) have closed back above the June high of 1916.50. These are key levels to monitor going forward as demand is clearly residing there.

Given gold’s reluctance to trade below 1900 then rebound quickly back to 1916, we see upside potential for gold over the near-term. And 1930 is within easy reach for today, but until we see a daily close outside the 1900-1950 area, we suspect conditions will remain choppy and traders would be wise to remain nimble.