There were questions surrounding the momentum of the rally already in European trading yesterday, especially in copper here. The key technical break there then gathered pace and led to a full-fledged selloff across the commodities space. Copper ended up with a roughly 6% decline - its worst since the Covid pandemic.

HG D1 23-05
Copper futures (HG) daily chart ($/lbs)

While copper may still be up some 6% in May trading, the upside momentum over the last two months has now been quelled.

From a technical perspective, the pullback looks to have legs to it with the 38.2 Fib retracement level of the swing higher only coming closer at $4.579. As such, sellers are now back in control.

As much as metals have a more bullish narrative attached to them, we musn't ignore price action either. And that also applies to gold in this latest instance.

XAUUSD D1 23-05
Gold (XAU/USD) daily chart

The drop back under $2,400 yesterday is a big setback to buyers but it isn't the first one. We already saw that previously in April trading before dip buyers stepped in.

Right now, the pullback is closing in on the 50.0 Fib retracement level of the recovery at $2,363. But in the bigger picture, the recent lows around $2,277 to $2,285 are a key supportive region for gold to sustain the upside bias.

I'm still an advocate of scaling in on dips for precious metals and copper but I wouldn't rule out a much deeper pullback after the stirring rally since March. In fact, my view is that we are overdue that at least at this stage.

And perhaps with inflation in major regions being stickier than expected, there is reason for traders to consider that too.