Commodities Watch: Gold eyeing upper consolidation range, cocoa regain upside momentum

Round-up

Asset performance over the past week has seen a whopping 11.5% gain in cocoa prices, as the demand-supply deficit for the soft commodity looks set to widen amid higher-than-expected cocoa demand in Europe and lower cocoa production in Ivory Coast. That said, the recent price surge follows after a hefty 33% decline from June this year, with earlier rallies generally displaying a pattern of unwinding as quickly as the gains come.

Gold and silver prices were in the green as well, both edging more than 2% higher. You can read more about silver prices in our previous analysis: https://www.ig.com/sg/news-and-trade-ideas/commodities-watch--silvers-bull-flag-breakout--brent-crude-on-fo-240705

Brent Crude prices were lower by 2.4%, but following a 14% rally since June this year, a temporary breather before the next leg higher may still be the argument here.

Spot Gold: Dovish rate bets bring retest of upper consolidation range

Gold prices have been stuck in a broad consolidation range since April this year, but has seen renewed signs of life lately as dovish Federal Reserve (Fed) bets continue to mount. The case for a September Fed rate cut has been built around softer US growth conditions, alongside promising inflation progress, which will likely see the Fed open the door to upcoming rate cuts at the July meeting.

Of course, the last hurdle to watch will be the US Personal Consumption Expenditures (PCE) price data release on 26 July, but it seems that it will have to take a huge surprise to significantly overturn the prevailing data trend thus far. While China’s gold purchases have come to a halt in May and June, ongoing geopolitical tensions, lower Treasury yields and a weaker US dollar remain as positive catalysts to drive inflows for the yellow metal.

On the technical front, gold prices seem to be looking for a retest of the upper consolidation range at the US$2,430 level. Buyers have been regaining some control for now, with its daily moving average convergence/divergence (MACD) crossing back into positive territory while its daily relative strength index (RSI) has overcome a downward trendline.

A breakout above US$2,430 could leave sight on the US$2,600 level next. On the other hand, if prices failed to break out of its current consolidation phase, we could see prices drift lower towards the US$2,350 level, where its July low stands alongside its daily Ichimoku Cloud zone.

Cocoa prices: Symmetrical triangle formation on watch

Cocoa prices have seen a bounce off the $6,000 level lately, which more broadly seems to trade within a symmetrical triangle formation. A bullish crossover was presented on its daily MACD, alongside higher lows, which points to near-term upside momentum. However, trading within the triangle formation will leave heavy resistance at the $7,800 level, where the upper triangle trendline stands alongside the upper edge of its daily Ichimoku Cloud. On the downside, the $6,000 level will remain as immediate support to hold, where the lower triangle trendline stands.