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Commodities and Precious Metals Update (Week Ending Feb. 1)

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

Key points 

  • Except for natural gas, all components of the energy sector ended higher last week. WTI and Brent crude oil prices increased 3.1% and 1.7%, respectively. Gasoline prices increased 2.3% and gasoil and heating oil prices both increased 1.4%. Natural gas prices fell 11.0%.
  • Base metals, except for aluminum, had another good week.  Nickel prices increased 5.8% and zinc prices rose 4.0% while copper prices gained 1.6%.  Aluminum prices fell 2.2%.
  • Grain prices, except for wheat prices, were lower last week.  Corn and soybean prices fell 0.5% and 0.8%, respectively.   Chicago wheat prices gained 0.8%.
  • Gold, silver and platinum prices all moved higher again last week. Gold prices rose 1.9% and silver and platinum prices increased 1.5% and 1.6%, respectively.
  • The S&P GSCI outperformed the Bloomberg Commodity Index last week with the Bloomberg Commodity Index down only 0.08% versus up 0.93% for the S&P GSCI.  The Bloomberg Commodity Index’s lower exposure to energy but higher exposure to natural gas was primarily responsible for its underperformance.
  • Total assets in commodity ETPs rose $79.6m last week. Gold ($322.3m), silver ($47.4m) and energy (ex-crude oil) ($32.3) ETP inflows were mainly offset by broad commodity (-$307.2m) and crude oil (-$39.1m) ETP outflows.

Commentary

The FOMC 2-day meeting ended on Wednesday with the U.S. Federal Reserve Bank leaving the Fed Funds target rate unchanged and indicating it would adopt a patient and more flexible stance on monetary policy going forward. Renewed optimism on U.S.-China trade talks and a stronger-than-expected employment situation report on Friday seemed to counteract a lower-than-expected Chinese purchasing managers index and expectations that a record number of Chinese companies would report losses.  At week’s end the U.S. dollar weakened 0.20%, the S&P 500 Index increased 1.6% and the 10-year U.S. Treasury rates fell 7bps to 2.68%. 

Oil prices continued their rise buoyed by greater-than-expected OPEC cutbacks, additional Venezuela sanctions, a smaller-than-expected EIA inventory increase and a reduction in the Baker Hughes rig count.   A more patient and flexible U.S. Federal Reserve Bank, renewed optimism on a U.S.-China trade agreement and a better-than-expected U.S. employment report also helped support crude oil prices.  Natural gas prices moved lower, despite last week’s polar vortex, on forecasts of warmer-than-usual weather for next week on the east coast.

Base metal prices, too, rose on the back of a stronger-than-expected employment report, the U.S. Federal Reserve Bank’s more flexible and patient monetary policy and on increased hopes of a U.S.-China trade agreement. Nickel prices, up the most on the week, benefited from increased concerns over supply levels while aluminum prices, lower on the week, suffered from the removal of U.S sanctions on Rusal.

Gold and silver prices moved higher mainly on the back of the U.S. Federal Reserve Bank’s more patient and flexible monetary policy.    Platinum prices moved higher with base metal prices.

Wheat prices moved higher on reports Russian exports decreased, potentially increasing demand for U.S. exports.  Despite Chinese statements they would be substantially increasing purchases of U.S goods, including soybeans, soybean prices gave up some of their recent increase.  

Coming up this week      

  • Fairly busy data week highlighted by the State of the Union Address on Tuesday.
  • Factory orders on Monday.
  • ISM non-manufacturing index and State of the Union Address on Tuesday.
  • International trade, productivity and costs and Fed Chairman Jerome Powell speaks on Wednesday.
  • Jobless claims on Thursday.
  • 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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