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Research

Commodities and Precious Metals Update (Week ending August 30)

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

Key points

Energy prices were all higher last week. Natural gas prices increased the most, gaining fell 5.1%. WTI and Brent crude oil prices rose 1.6% and 0.8%, respectively.  Gasoil and gasoline prices increased 0.5% and 0.4%, respectively and heating oil prices increased 0.7%.   

Grain prices were mixed with wheat prices falling and corn and soybean prices rising. Chicago and Kansas wheat prices fell 3.2% and 1.9%, respectively, while corn and soybean prices increased 0.5% and 1.5%, respectively.

Base metal prices were also mixed with nickel prices surging last week.  Nickel prices jumped 14.5% while copper prices increased 0.6%.   Zinc and aluminum prices fell 2.1% and 1.1%.

Gold, platinum and silver prices all increased last week.  Gold prices increased 1.6% and silver prices gained 4.5%. Platinum prices surged, increasing 10.3% .

The Bloomberg Commodity Index outperformed the S&P GSCI last week. The Bloomberg Commodity index increased 1.27% while the S&P GSCI increased 0.98%.  The Bloomberg Commodity Index’s larger exposure to natural gas and precious and base metals was the primary reason for its outperformance.

Total assets in commodity ETPs increased $1,230.6 last week, driven by large inflows into gold ETPs. Gold ($1,281.9m), silver ($46.3m) and precious metals (ex-gold and silver) ($15.2m) ETP inflows were slightly offset by broad commodity (-$48.2m) and crude oil (-$60.0m) ETP outflows.

Commentary

A mix of stronger-than-expected U.S. economic reports and statements from China seemingly de-escalating trade frictions moved U.S. stock markets higher while also strengthening the U.S. dollar.  Weaker global economic growth, especially in Germany and the U.K., combined with the overhang of the ever-changing outlook for U.S.-China trade relations helped move U.S. interest rates lower with the 30-year U.S Treasury rate falling to a record low of 1.90% during the week, momentarily inverting the 30-year to 3-month U.S. Treasury yield curve. At week’s end the S&P 500 Index was higher by 2.8%, the U.S. dollar (as measured by the DXY index) strengthened 1.3% and 10-year U.S. Treasury rates fell 4bps to just under 1.50%.  30-year U.S Treasury rates fell 6bs to 1.96%.

Up 4.5% through Thursday on the back of a much-larger-than-expected decrease in U.S. oil inventories, heightened tensions between the U.S. and Iran and hopes of a reduction in U.S.-China trade tensions,  WTI crude oil prices dropped almost 3% on Friday over lingering global growth concerns going into a long U.S. holiday weekend.

Despite a much stronger U.S. dollar, copper prices rose slightly supported by expectations of reduced U.S.-China trade frictions.  Nickel prices, up almost 15% over the week, jumped 9% on Friday after Indonesia announced it would ban raw ore exports at the end of this year, much sooner than anticipated.

Silver and platinum prices moved significantly higher last week, despite the strength of the U.S. dollar, benefiting from increased demand as haven investments.

Wheat prices moved lower last week on continued concerns of global oversupply.   Corn and soybean prices were supported by expectations of reduced U.S.-China trade tensions.

Coming up this week      

  • Holiday-shortened data week finishing with the employment situation report on Friday.
  • PMI and ISM manufacturing indexes on Tuesday.
  • International trade on Wednesday.
  • ISM non-manufacturing index and jobless claims on Thursday.
  • Employment situation report on Friday.
  • EIA petroleum report on Thursday 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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