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Commodities and Precious Metals Update (Week ending August 2)

Posted:
Topic: Gold , Commodities
Publication Type: Market Commentaries

Key points

All components of the energy sector finished lower last week.  WTI and Brent crude oil prices decreased 1.0% and 2.6% respectively. Gasoil and gasoline prices decreased 1.1% and 2.2%, respectively, and heating oil prices fell 1.2%.  Natural gas prices declined 1.4%.

Grain prices, too, were all lower last week.  Chicago and Kansas wheat prices decreased 1.1% and 2.4%, respectively, and corn and soybean prices both fell 3.6%. 

Base metal prices, except for nickel prices, all fell last week as well.  Aluminum prices decreased 2.0%, copper prices decreased 4.2%, and zinc prices decreased 2.6%.  Nickel prices increased 2.7%.

Lean hog prices fell 17.3% and cotton prices fell 7.9%.

Gold prices moved higher last week while platinum and silver prices fell.  Gold prices increased 1.5%.  Silver and platinum prices decreased 0.8% and 2.8%, respectively.

The S&P GSCI underperformed the Bloomberg Commodity Index last week with the S&P GSCI decreasing 2.13% versus the Bloomberg Commodity Index decreasing 1.88%.  The S&P GSCI’s larger exposure to energy was the primary reason for its underperformance.

Total assets in commodity ETPs increased $891.7m last week. Gold ($948.7m) and crude oil ($21.8m) ETP inflows were slightly offset primarily by broad commodity (-$54.3m) ETP outflows.

Commentary

Following somewhat stronger-than-expected U.S. economic and inflation reports (including the previous Friday’s GDP report), the FOMC voted on Wednesday to reduce the Fed Funds target rate 25bp to between 2.00% – 2.25%. Fed Chairman Powell’s press conference comments on Wednesday seemingly indicated that the current reduction was not the start of an easing program but instead a “mid-cycle correction” causing the U.S dollar to strengthen and U.S. stock markets to falter. Thursday’s tweet by President Trump announcing his intentions to impose a 10% tariff on an additional $300 billion of Chinese imports greatly increased concerns of weak global and U.S. economic growth pushing the U.S. dollar off its highs and U.S. stock markets even lower while propelling the 10-year U.S. Treasury rate below 1.9%.  Friday’s better-than-expected employment report was all but ignored and at week’s end the U.S dollar was up 0.1%, the S&P 500 Index decreased 3.1% and the 10-year U.S. Treasury rate was down 23bps to 1.85%.

A volatile week for crude oil prices.  WTI crude oil prices, up over 4% through Wednesday on a much-larger-than-expected drawdown in U.S. oil inventories, reversed course on Thursday falling almost 8% after President Trump’s tweet announcing addition tariffs on Chinese imports.  Prices retraced some of Thursday’s loss on Friday, increasing a little over 3%.

Most base metal prices moved lower last week primarily over increased concerns of weaker global and Chinese economic growth resulting from President Trump’s tariff tweet on Thursday and from U.S Federal Reserve Bank seemingly minimizing the extent of future rate decreases.  Nickel prices, up on the week, were supported by supply concerns as well as continued expectations of strong demand from battery producers.

Gold prices, practically unchanged through Thursday, moved sharply higher on Friday with greatly increased concerns of slower global growth as well as from increased expectations the U.S. Federal Reserve Bank would reduce rates more and faster as a result of  President Trump’s tweet announcing his intention to impose tariffs on another $300 billion of Chinese imports.   Silver and platinum prices fell moving in line with base metal prices.

Grain prices moved lower again last week on improved weather conditions in the U.S, increased forecasts of world supply and over concerns of reduced demand due to U.S.-China trade frictions.

Lean hogs plummeted over 17% last week over concerns of large supplies and much lower demand, especially from China, as a result of increased U.S.–China trade frictions.  Cotton prices also fell sharply, declining 8% on the week, over concerns of lower demand resulting from increased U.S.–China trade frictions.

Coming up this week      

  • Very light data week with PPI the only notable report on Friday.
  • ISM non-manufacturing index on Monday.
  • Jobless claims on Thursday.
  • PPI on Friday.
  • EIA petroleum report on Wednesday and Baker-Hughes rig count on Friday.

Jeff has over 20 years experience working as a trader, structurer, marketer and researcher. Most recently, Jeff was the Chief Investment Officer for Rich Investment Services, a company which created, listed and managed ETFs. Prior to Rich Investment Services, Jeff headed the New York Commodities Structuring desk at Deutsche Bank AG. From 2004 to 2007, he headed the marketing and structuring effort for rates based structured products at BNP Paribas in New York. He worked at AIG Financial Products from 1994 to 2004 trading rates-based volatility products as well as marketing and structuring. Jeff received his MBA in Finance from NYU Stern School of Business and his Bachelors of Science in Chemical Engineering from Purdue University.

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