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This week, we take a close look at zinc. We considered the spot price of zinc traded on London Metal Exchange (LME) for this analysis. The spot price is quoted in dollar/mt (tonne). LME zinc spot advanced $12 for the week to end at $1821.5/t on Friday.
LONG-TERM VIEW
The metal encountered key resistance in the band between $2,575 and $2,635 in January 2010, following a strong rally in the year 2009. This resistance band prevented the metal from trending higher in October 2010 and again in February 2011. Thereafter, zinc lost its bullish momentum and began to trend downwards until August 2012. Important long-term base in the zone between $1,750 and $1,800 provided support for the metal.
Since September 2011, zinc has been in a broad sideways consolidation phase in the wide range between $1,750 and $2,200. To determine a clear long-term trend, the metal has to emphatically breakthrough in either direction.
A strong tumble below the lower boundary of the aforementioned sideways consolidation phase of $1,750 will pull the metal’s price down to $1,600 levels. Next key supports below $1,600 are positioned at $1,500, $1,300 and then at $1,055. Conversely, a breakthrough of the upper boundary will pave the way for a rally to $2,400 and to $2,600 in the long run. Next resistance is at $2,800 levels.
MEDIUM-TERM VIEW
After encountering key resistance at around $2,200 in early February, the commodity changed its trend triggered by negative divergence in the daily relative strength index. Since then, the metal has been on a medium-term downtrend. In mid-March, zinc decisively breached its 200-day moving average and important support at $1,900 levels as well. The metal is hovering well below its 50- and 200-day moving averages.
The metal is testing the key support band between $1,750 and $1,800. Its daily RSI is displaying positive divergence implying that trend reversal is on the cards. To determine this, the metal needs to rally above $2,000. A strong climb above $2,000 can take the metal higher to $2,200 levels in the medium-term. Immediate resistance is at $1,900 levels. But, downward breakthrough the aforesaid support band will pull the metal price down to $1,600 in the medium-term.
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