Gold and copper prices could be set to converge

Gold futures reach a record high for the third consecutive day on Monday. Yet bulls have failed to send prices markedly higher above the October high, which leaves the precious metal vulnerable to a shakeout at the highs. Especially since bulls failed to fully capitalise from the risk-off flows stemming from Trump’s trade negotiations.

Meanwhile, copper futures are perking up. And that suggest to me that bulls may have more luck being long copper over the near term, as it appears copper is due a bounce while gold is due a retracement.

Gold/copper ratio technical analysis

To underscore this point, the gold/copper ration is approaching the 2016 high. But as of yet, prices seem hesitant to test that key level, but instead holding beneath the November high while a longer-term bearish divergence forms with the weekly RSI (14).

With that said, the trend from the 2021 low appears constructive for a breakout of the 2016 high in due course, but perhaps not until the ration has retreated over the near-term (bullish copper, bearish gold).

The daily chart also shows an established bearish divergence on the RSI (14), while the price ration is struggling for a third time to hold above 660.

Gold futures technical analysis

An elongated inverted hammer formed on Monday. While it closed at a record high, it was only marginally so. And much of the day’s range formed during the lower wick, beneath the previous record high set in October. Also note that daily trading volumes have been trending lower, and a bearish divergence has formed on the daily (2). Perhaps a pullback towards the monthly pivot point at 2780 could be on the cards, just above the January VPOC at 2771.

The 1-hour chart shows a potential bullish pennant / bull flag is forming. This has me on guard for another attempt higher by bulls. But given the failed attempts for bulls to hold on to gains, and the fact that sellers stepped in with high volumes immediately after Monday’s record high, I am wary than any bullish breakout today could be another trap for bulls. And the real move is to the downside over the near term.

Copper futures technical analysis

The January low stopped just shy of testing the $4.00 handle, and has since posted a solid bounce. Prices have retraced perfectly to a 61.8% Fibonacci retracement level on the daily chart, with a high-volumed bullish hammer on Monday. The bias now is to seek dips within Monday’s range down towards the monthly pivot point at 4.2515. The initial upside target $4.50, near the monthly R1 pivot point.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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